Many sibling fights involve a dispute over whether Mom or Dad intended to gift property or cash to a sibling. The recipient sibling or “donee” will argue a gift while another sibling will argue that the parent did not intend a gift or lacked capacity to make the gift.
In an earlier blog, I have written about how large gifts can lead to a sibling estate fights. In order for a gift to be valid, the person making the gift (the donor) must have capacity to make the gift. Furthermore, the donor must have intended the transfer of property to be a true gift.
If there has been no consideration given by the recipient of the gift (the donee) to the donor, the law presumes a resulting trust.
Rothstein, J. in the Supreme Court of Canada decision of Pecore wrote:
A resulting trust arises when title to property is in one party’s name, but that party, because he or she is a fiduciary or gave no value for the property, is under an obligation to return it to the original title owner.
In other words, if the gift is challenged, the recipient is going to have some explaining to do!
To have the capacity to make a gift, the donor must understand the nature of the gift and the ability to understand the specific effect of the gift in the circumstances.
Capacity tests used by the Court will vary depending on the size of the gift and its relationship to the total value of the donor’s property. So if the gift is very large or represents almost the entire value of the person’s property, the Courts will rely on the higher test of testamentary capacity- that is, did the donor understand what they owned, the potential beneficiaries of their estate and the potential claims that could be made by their beneficiaries.
As well, the Courts will look to determine whether the donor was unduly influenced in making the gift. For example, did the elderly parent make the gift because he or she felt pressured to help a child who might otherwise abandon him or her.
The recent case of Sutherland v Dorland is an example of the expensive and protracted estate fight that can occur when siblings fight over what one sibling claims is a gift and the other sibling claims is being held in trust for the estate of the donor because the donor lacked capacity to make the gift or was unduly influenced by the donee.
The case involved the estate of Eileen Fountain who died on November 29, 2005 at the age of 90. She had two daughters: the plaintiff Julie Sutherland and the defendant Marilyn Dorland. Ms. Sutherland as committee of the estate sued her sister for just over $150,000.00 .This amount represented the total of cheques written by the deceased to the defendant daughter over a period of four years. The trial took place over 4 days between August and November 2010 and judgment was not released until April 27, 2012! This case underscores the delays and expense that can occur when these types of disputes fall into the judicial process.
The judge held that Marilyn, because she gave no consideration for the “gifts”, had to rebut the presumption of resulting trust. Marilyn could not explain the reasons for most of the “gifts”. The challenged gifts represented almost all or a significant part of the estate that would have otherwise been available for distribution. As a result, Marilyn faced a heavy onus to satisfy the court of the legitimacy of the gifts.
In the end, Marilyn was ordered to pay back $ 130,000.00. However, based on a close reading of the decision, Marilyn might not have had the resources to repay the gifts.
To prevent gifts from being challenged, the recipient may very well want to have the gift carefully documented including the reason for the gift. If there is any chance of the gift being challenged by a sibling who does not receive a similar gift, the recipient may want to have the parent undergo a capacity assessment if there is any possible question of incapacity or undue influence.
Recipients be warned. Any gift which is extremely large in relation to the parent’s estate is going to be very closely scrutinized by the other siblings and the Court.