There is a difference between paper title ownership and beneficial ownership of property. Most of the time, the same person is the paper title owner (or the legal owner) and the beneficial owner of a property. However, under certain circumstances, the paper title owner and the beneficial owner can be two different people – sometimes this happens through a written agreement between the parties that clearly outlines their intentions and is registered on title to the property, and other times the parties’ intentions are not espoused in a clear agreement and a dispute arises. I’ll be focusing on the latter.
Generally, the law presumes a bargain and not a gift. This is a rebuttable presumption, meaning that it is more of a starting point in the analysis, and an opposing party will have an opportunity to attempt to prove, in the circumstances at hand, a gift was the true intention.
A resulting trust arises when a person holds title to a property, but did not give any value for it – the law presumes that the person that provided the value for the property is the true owner (the beneficial owner). Where a resulting trust is found to exist, the paper title holder is required to return the property to the beneficial owner upon request.
The common law is often called upon to determine if a resulting trust exists when one party claims that a property was gratuitously transfer to them, or the value given to them to purchase the property was a gift, and the alleged gift-giver (the donor) disagrees. Generally, the intention of the donor at the time of the transfer of the property is the governing consideration. The person claiming beneficial ownership of the property is only required to show that they provided the value that was used to purchase the property, or transferred the property for zero, or nominal consideration to the paper title holder. This is usually a straightforward evidentiary process that can be accomplished through the use of financial records. Assuming the alleged beneficial owner’s success at this first stage, the legal onus then shifts to the paper title holder to prove that the value provided was intended to be a gift (i.e. father provides adult son $500,000 to buy a condo outright – father provides the transaction records from the purchase proving he provided the funds – burden then shifts to the son to prove that his father’s intention was a gift). Again, the law presumes that the person that provided the value expected something in return (the property), unless the paper title holder can convince the court otherwise.
In 2015, the Ontario Court of Appeal examined the doctrine of resulting trust in the case of Mroz v. Mroz. The facts to Mroz are as follows. Kay, an elderly woman, had no significant assets except for her home. Kay decided to transfer her home to her daughter, Helen, and herself in joint tenancy. Helen testified that her mother did this because she was a frugal woman and wanted to avoid paying probate fees. Kay then wrote a will where, apparently, she bequeathed her share of the property to Helen on the conditions that within one year of her death, Helen paid $70,000 to each of Kay’s two grandchildren (Helen’s niece and nephew) (Kay’s will also included a $50,000 gift to her nephew, Richard, and his family and a separate $5,000 gift).
Kay died on June 18, 2005. In October 2005, Helen sold the property and received approximately $476,000 on closing. Helen then took the position that she was the sole owner of the property by operation of law, in that she was the surviving joint tenant, and therefore, in her view, she was free to sell the property and to keep the proceeds for herself. The Court of Appeal disagreed.
Since Helen provided no value for the gratuitous transfer of the property, a resulting trust was presumed. On the evidence, Helen was not able to rebut the presumption, and therefore while Kay was alive, she continued to be the sole beneficial owner of the property, and when she passed, her beneficial ownership of the entire property passed to her estate – meaning Helen was responsible to pay out the bequests outlined in Kay’s will.
The moral of the story: when transferring property for no consideration, make your intentions clear, put them in writing, and seek legal advice.
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Again, generally. In certain circumstances, the law will presume a gift. For example, when a parent makes certain provisions for a child below the age of majority, the law presumes a gift, rather than a bargain.
— This entry was authored by Scott G. Lemke
Information herein is NOT legal, financial or investment advice. Should you have questions with respect to the information herein, please contact Lemke Law Professional Corporation