July 4, 2024 – Transfers From Parents to Adult Children: The Importance of Rebutting the Presumption

“Next, the trial judge considered whether the transfers from Salvatore to Sam were gifts. In deciding this matter, the trial judge relied on Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795, in which the Supreme Court held that when a parent gratuitously transfers property to their adult child, the law presumes that the child holds the property on resulting trust for the parent. To rebut the presumption, the adult child must proffer clear, convincing, and cogent evidence that: (1) the parent intended to make a gift of the property to the child, (2) the child accepted the gift, and (3) a sufficient act of delivery or transfer of the property occurred to complete the transaction.

Pecore provides that when a parent gratuitously transfers property to their adult child, the law presumes that the child holds the property on resulting trust for the parent. That is, the law presumes the child is a fiduciary. However, the presumption can be rebutted in whole or in part. So, for example, in Pecore, the presumption was rebutted in part because the court found that the father had added his adult daughter as a joint account holder with the intention of gifting to her the right of survivorship.

As I explain below, on the findings of the trial judge, Sam rebutted the presumption of resulting trust in relation to the transfers Sam made from the bank account to which he held joint title with Salvatore. In so doing, Sam proved that the impugned transfers were gifts to him. Therefore, Sam breached no fiduciary obligations in making those transfers to his own benefit.

Sam also effected transfers from other of Salvatore’s bank accounts in which Salvatore alone was on title. In effecting transfers from these accounts, Sam did so as Salvatore’s attorney. Sam knew he had Salvatore’s permission to exercise power over Salvatore’s property. In exercising that power, Sam was a fiduciary and subject to fiduciary obligations. If Sam was unsure of the source of his power, or the nature and type of obligations attendant on his exercise of power over Salvatore’s property, it was up to Sam to take the necessary steps to find out what obligations he was subject to.

For these reasons, I accept Salvatore’s submission that Sam was a fiduciary both in respect of Salvatore’s bank accounts and in his use of the Power of Attorney, and the trial judge erred in law in finding otherwise.

However, in my view, the trial judge made no error in concluding that Sam did not act in breach of his fiduciary obligations. On the trial judge’s findings, Salvatore authorized all of the impugned transfers. Therefore, when Sam acted as attorney to transfer assets to himself, he was fulfilling Salvatore’s instructions. Where a donor has capacity, the attorney is primarily informed by the donor’s instructions, and the attorney is not in breach of their obligations if they follow those instructions.

In Richardson (Estate Trustee of) v. Mew, 2009 ONCA 403, 96 O.R. (3d) 65, at para. 49, this court referred to the following description of the prohibition against using a power of attorney for personal profit, citing Egli v. Egli, 2004 BCSC 529, 28 B.C.L.R. (4th) 375, at para. 82, aff’d 2005 BCCA 627, 262 D.L.R. (4th) 208:

It is the attorney’s duty to use the power only for the benefit of the donor and not for the attorney’s own profit, benefit or advantage. The attorney can only use the power for his or her own benefit when it is done with the full knowledge and consent of the donor. [Emphasis added; citations omitted.]

In this case, as the trial judge found, Salvatore had full capacity and knowledge, and he consented to the impugned transfers. In fact, Salvatore instructed his attorney, Sam, to make the transfers.

In these circumstances, despite being a fiduciary, Sam was entitled to use his powers as attorney to effect the transfers for his own benefit.”

         Falsetto v. Falsetto, 2023 ONCA 469 (CanLII) at 27, 45-52.