The Presumption of Resulting Trust in Estate Matters

As people get older, it is often the case that they need assistance dealing with their financial affairs. One method of doing this is by adding a child as a joint bank account holder. In other cases, people may want to make an absolute transfer of excess property, like the family cottage, to the child inter vivos (“while alive”).

Maneuvers like these can cause disagreement conflict amongst the beneficiaries of the estate, especially if there are other children of the testator who were not added as joint holders of the accounts or given an interest in other property.

The Right of Survivorship in Relation to Joint Assets

Generally, if an individual who holds property jointly with another person then passes away, the entire interest in the property passes to that other person. This is known as the “right of survivorship”.

However, when the adult child holding joint ownership has not contributed to the account, the other beneficiaries of the estate may disagree that the testator intended to pass sole ownership to the adult child. Rather, they often argue that the intention was only for the adult child to assist the parent with managing their financial affairs.

The Presumption of Resulting Trust

These types of disagreements are common, and they have led to the development of the “presumption of resulting trust”, which was established in the Supreme Court of Canada decision Pecore v. Pecore.[1] Pursuant to this presumption, if the parent gratuitously transfers assets to an adult child either absolutely or jointly with the parent, then the court will presume that the transfer was made so the child could hold the property in trust for the parent’s estate. In other words, it is presumed that the property was meant to remain with the estate of the deceased, not pass to the child.

It is important to emphasize that the presumption of resulting trust only applies to transfers to adult children. It does not apply to transfers to minor children (i.e. those under 18 years of age). Instead, the presumption of advancement applies to those transfers, meaning that the court presumes that a gift was intended.

Rebutting the Presumption of Resulting Trust

The onus is on the adult child to rebut this presumption by showing that the transfer was intended to be a gift.[2]

Ideally, when making the transfer, the parent would document their intention. However, in the absence of such documentation, the child will likely have to meet a high evidentiary threshold in order to rebut this presumption.

When determining what sort of evidence can rebut the presumption, it is useful to look at a recent Ontario case, Fichera v. McAllister.[3] In Fichera, following a testator transferring a house to their adult child for nominal consideration, and the death of the testator, the court relied on the testimony of the testator’s solicitor, namely that:

• the solicitor had no concerns about the testator’s testamentary capacity;
• the testator’s instructions were clear;
• the solicitor had no concerns about the testator being unduly influenced; and
• the solicitor was absolutely certain that the transfer of property to the testator’s son for nominal consideration ($1.00) was intended to be a gift.[4]

Given the solicitor’s testimony, the Ontario Superior Court held that the presumption of resulting trust was successfully rebutted.[5]

A Note on the Treatment of Beneficiary Designations

Recently, Calmusky v. Calmusky,[6] a decision of the Ontario Superior Court, examined Pecore and the application of the presumption of resulting trust to a beneficiary designation under a Registered Investment Fund (“RIF”).

The Court concluded in Calmusky that in addition to the transfer of bank accounts into joint names, the presumption of resulting trust should also apply to a beneficiary designation, since “in both cases, the transfer is gratuitous, as would be necessary for the presumption of resulting trust to apply.”[7]

However, the Calmusky decision can be contrasted with the more recent decision in Mak (Estate) v. Mak.[8] In Mak, the Ontario Superior Court revisited the issue and found that a beneficiary designation is more like a testamentary disposition, such as when an individual makes a will.[9] Reasons for Justice McKelvey’s decision include the fact that the presumption of resulting trust applies to inter vivos gifts, not testamentary dispositions.

Consequentially, there is now uncertainty in Ontario about whether or not the presumption of resulting trust applies to beneficiary designations, seeing as such designations are testamentary in nature. It is likely that further litigation will be required to provide clarity on the issue.

Avoiding Costly Litigation

The presumption of resulting trust, like other legal presumptions, is the starting point for the court in determining the intention of a testator who made a transfer of property for nominal consideration to an adult child. Consequentially, when making an inter vivos transfer to joint or absolute ownership, it is important to consult with a  lawyer and document the intention behind the transfer in order to make intentions clear and avoid costly litigation in the future.

This article was written by a member of the Wills, Estate & Trusts team at McKenzie Lake. If you require assistance with a Wills, Estate & Trusts matter or wish to speak to a lawyer at McKenzie Lake Lawyers LLP, please call (519) 672-5666.

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[1] 2007 SCC 17 [Pecore].

[2] Ibid, at para 81.

[3] 2021 ONSC 2685 [Fichera].

[4] Ibid, at para 25.

[5] Ibid, at para 30.

[6] 2020 ONSC 1506 [Calmusky].

[7] Ibid, at para 56.

[8] 2021 ONSC 4415 [Mak].

[9] Ibid, at para 41.