Trusts, Gifts and Family Law

August 14, 2020

By Brian Babcock

It is important to know whether a transfer of property within a family is intended to be a gift or to create a trust. In particular, this can have significant impact on division of property in family law.

The recent Court of Appeal case of Kent v. Kent began as a very common fact situation, then added wrinkles.  A mother transferred the title to the family home into the names of herself and her only child, an adult daughter, as joint tenants. Many people do this to try to avoid probate taxes on death.

The first wrinkle was introduced when the daughter and her husband moved in with the mother. This meant that if the daughter has an interest in the property, it became a matrimonial home for family law purposes.

Then the daughter died before the mother, which is no doubt not what they expected when they did the transfer. Mom transferred title back into her own name as surviving joint tenant.  The transfer contained a statement that “The property was not a matrimonial home of the deceased at the time of death.”

She later transferred the home into joint tenancy between herself, the husband, and her two grandchildren.

Daughter’s husband continued to live in the home with the mother.

Mom continued to pay all household expenses until she died. Her will, updated after her daughter’s death, left the home to her two grandchildren and their father, the husband, equally.

Except the Family Law Act provides that:

If a spouse dies owning an interest in a matrimonial home as a joint tenant with a third person and not with the other spouse, the joint tenancy shall be deemed to have been severed immediately before the time of death.

So, if the house was a matrimonial home, then Mom was not a surviving joint tenant, and the Husband inherited his wife’s share of the house when his wife died, under her will. On a severance of a joint tenancy, that would be presumed to be one-half of the value of the house, so after Mom’s death, he would end up with two-thirds of the value of the property, rather than one-third.

Prior family law decisions have made it clear that the interest referred to in the Family Law Act section on joint tenancy must be a beneficial ownership. In order for the property to be a matrimonial home, the daughter had to have a beneficial interest in the property.

Here is where the difference between a gift and a trust comes in. A gift is a free transfer intended to give the recipient beneficial ownership of the property. Where a trust exists, legal title is transferred, but the beneficial ownership is not given with that legal title.

If the transfer from Mom to joint tenancy was intended to be a gift, then the husband is correct.

However, in Canadian law, there is a rebuttable presumption that a transfer from a person alone into their name jointly with an adult child creates a trust, not a gift. If this applied, then the daughter as trustee had no beneficial interest in the property, and it did not become a matrimonial home. If that was the case, then the entire value of the house is divided as part of Mom’s estate.

With both mom and daughter deceased, there was no evidence to rebut the presumption – the husband had not been involved in the transaction, so had no information. Husband had not attempted to claim an interest in the property after his wife’s death. If he had, then Mom would have been alive to give evidence of her intention. Her will, and the transfer back into her own name as surviving joint tenant, suggested that she believed she still owned the home outright. Interestingly, there seems not to have been evidence from the lawyer who handled the transactions – lawyers usually keep file notes to document things like intention.

Based on the available evidence, the transfer into joint tenancy with the daughter was held to have made the daughter merely a trustee of Mom’s interest in the property. Daughter had no interest in the home of her own, so it was not a matrimonial home.

As a result, the husband’s claim to two-thirds of the value was denied.

Because unexpected things happen in life, it is important not only to keep wills and the title to property up to date, but also to document your intentions.