Parent to child transfers: gift or resulting trust?



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PART 1: THE CURRENT LAW


Essentially, voluntary transactions by ageing parents which may be problematic take two forms: (1) voluntary transfers of land to their adult children; and (2) provision of the purchase price for property which is registered in the adult child's name.

Some of the recent decisions provide useful illustrations. In Kosmas v Cherote12, an elderly parent transferred his house to his son (his primary carer), without requiring or expecting payment of the nominated consideration of $260,000. He made no provision for his own future care and accommodation.13 After his death, his administrator unsuccessfully sought to set aside the transfer on the basis of undue influence. In Keremelevski v Keremelevski14, elderly parents transferred their house to their children for essentially no consideration. Hamilton J said: ‘there is no doubt that the plaintiff [the mother] came to have an expectation that the defendants would look after her in her own home until her death’.15 However, Hamilton J concluded that although it was promised that the plaintiff would be cared for, the promise was not made that the care would be in her own home until death. 16

The plaintiff argued a resulting trust on the basis that the purpose for the transfer had failed. Hamilton J concluded that the purpose had not failed, as the promise had been ‘substantially carried out’. The defendants had cared for the plaintiff until the need for a high level of care required her to be placed in a nursing home.

In this type of case, there is no role for the doctrines of undue influence or unconscientious dealing. The elderly parent, transferring land for a promise for future care, has to look to the law of resulting trusts.

Equity’s response, (and the parents’ chances of obtaining a resulting trust) vary depending upon the form of the transaction. Where the parent has voluntarily transferred property, there is no standard Australian position, and the applicable law has not been definitively stated. In a majority of States, voluntary transfers of land are regarded as gifts, even if the land is the transferor’s only substantial asset.17 The identity of the recipient and their relationship with the transferor is not relevant. It appears that on the current position, evidence of actual intent will not be regarded. Thus, in those States, the parent must turn to the doctrines of unconscionable dealing or undue influence to overturn the transaction. In the absence of influence or exploitation, the parent has no redress if the informal promise of care is not fulfilled.

In other States, voluntary transfers of land are presumptively trusts, unless to a child, in which case they are presumptively gifts.18 However, evidence of actual intention can be led to rebut the presumption of advancement.

In all States, if the parent has used their money in the purchase of property which is put partly or wholly in the name of a child, a presumption of advancement arises.19 The presumption can be rebutted on the facts, and a resulting trust then arises in favour of the parent. If the title is put in the name of another family member, such as a grandchild, the advancement presumption does not apply, and a presumption of resulting trust exists.

The difference in outcomes is best illustrated by example. The fundamental mismatch between purchase price resulting trusts and voluntary transfer resulting trusts is most pronounced when the transaction is not between parent and child, so that the presumption of advancement does not arise. For example, if a mother-in-law provided the purchase price for land which was then registered in the name of her daughter-in-law, the presumption of advancement would not apply, but the presumption of resulting trust would. The daughter-in-law would then need to rebut the presumption of resulting trust by proving that the provision of purchase price for the property was a gift.

If, on the other hand, the mother-in-law did not provide the purchase price for property held in her daughter-in-law’s name, but instead transferred her own land to the daughter-in-law, the law in most Australian jurisdictions is that the transaction is a gift, and no evidence of contrary actual intention will be admitted. Recent decisions illustrate this proposition. In Smith v Glegg20, an 85-year-old widow voluntarily transferred her house, which was her only substantial asset, to her grandson. In Janson v Janson21, a 90-year-old man transferred his interest in the home in which he had lived for nearly all of his life to his nephew. Because the transactions involved voluntary transfers of land, no presumptions of resulting trust applied, and the transfers were valid unless they could be set aside on the basis of other equitable doctrines. In both cases, the transferors were able to prove that the transaction was affected by undue influence.

However, many cases will not be able to be resolved by the application of unconscientious dealing or undue influence. Where a parent transfers property to a child in exchange for a promise of future care, or to divest herself of assets, there may be no influence or exploitation. The form of the transaction directly affects the likelihood of the parent obtaining relief.

Consider the case of an older woman who sells her house and provides the purchase price for her child’s home. There is an initial presumption of advancement (gift) which can be rebutted by proof of contrary intention. This intention may be, for example, that she was intending to live in the property as well, or that she only provided the purchase price to divest herself of assets in order to avoid paying a bond for a retirement home.

On the other hand, if the woman executes the same intention by directly transferring her property to her child, the option of proving her intention is currently in serious doubt. On the currently favoured approach, in most States, the transaction is a gift and will stand unless she can prove the transaction was affected by other equitable wrongdoing.

However, there is little reason to believe that the parent intended the structure of the transaction to matter. If she wished to achieve an end result of legal ownership in her child, the issues of structure are likely to be determined by practical questions. Is the existing house suitable for the parties’ future needs? Which transaction results in fewer costs but still meets the parties’ future plans? Particularly where parents have concerns regarding home ownership as part of an asset realization process for pension or retirement home issues, the structure of the transaction is unlikely to be determinative of the parties’ intentions.

In Calverley v Green,22 Murphy J acknowledged the illogicality of treating the two transactions differently. His Honour said:

there is no logical basis for distinguishing between a conveyance to another at the time of purchase and a voluntary transfer, so that a resulting trust will arise in one but not the other.23

If this is true, then a rational set of laws requires that voluntary transactions between ageing parents and their adult children be treated the same whether the transaction was structured as a transfer of land or the provision of purchase price. The form should not alter the law if the substance of the transaction is the same.

This stands in contrast to the current position in Canada, since the Supreme Court decision of Pecore v Pecore.24 In Canada, the law now appears to be that voluntary transfers of land and payment of purchase price both give rise to the presumption of resulting trust.25 Furthermore, the presumption of advancement no longer applies in relation to transfers from parents to adult children.26

Thus, in Canada, voluntary transfers of land give rise to a presumption of trust, although the presumption appears quite weak and courts look for evidence of actual intention.27 This may mean that Canada is in a better position to deal with the increasingly frequent situation of older generation parents who are entering into voluntary transasctions with their children, as part of managing their own assets.

It is now time for Australian courts or the legislature to address the unacceptable disparity in treatment of like cases. I will first examine why the disparity arises then I will consider how best to frame the solution.




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