Parent to child transfers: gift or resulting trust?


Part 4: Practical implications of the solutions



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Part 4: Practical implications of the solutions


As far as possible, all similar cases should be treated alike. The solutions above offer different ways to increase consistency in the law’s response to these transactions. However, a broad approach to reform in this area also requires consideration of the practical consequences flowing from reform. In particular, we should consider whether any of the solutions will drive changes in how families deal with voluntary transfers, so that these disputes are less likely to occur.

The House of Representatives Standing Committee Report on Older People and the Law105 noted the submission of the Victorian Government that:

the major problems stem from lack of education and awareness of legal rights … and unwillingness to place pressure on family relationships by clearly setting out the terms of care and property agreements in advance.106
Will any of the suggested solutions assist older parents to be aware of their legal rights and/or to set out family agreements in more detail?

It is suggested that although options 2 and 3 will result in increased consistency in treatment of like cases, there will be no reduction in these disputes coming to court, and the burden of proving the beneficial interest will remain with the elder. As stated by the Senate Committee in its report, the stress and cost of litigation in which the burden of proving an interest falls on an elderly and possibly frail plaintiff is a substantial barrier to relief. 107


Option 2: Removing presumption of trust for purchase money trusts


The main advantage of this proposal is evidential, as it eliminates the need to rely on presumptions in most cases. Thus, only evidence of actual intent will be relevant in court.

In terms of practical consequences, it can be anticipated that this approach will not reduce the number of cases in which parents dispute the transactions entered into with their children. Further, in relation to purchase money transactions, it reverses the current burden of proof as between parents and children, making it necessary for the parent to lead evidence of actual intent to retain a beneficial interest.


Option 3: Presuming that a voluntary transfer is a gift but allowing evidence of contrary intention to be led


The effect of this proposal will be to make it somewhat easier for parents to challenge a transaction if the parent is of the view that the transfer was conditional or dependent on certain arrangements occurring. Fundamentally though, this solution will not prevent the problem from happening. Parents will continue to trust their children, and may, as a consequence, enter into arrangements without making adequate provision for their own future needs.

Both options 2 and 3 continue to favour the child. It is clearly demonstrated in the existing cases that where the presumption favours the child, there is no incentive for the parties to formalize the agreement in writing, and the parent frequently obtains inadequate advice as to the risks inherent in the transaction. The parent trusts the child and does not force their expectations to be documented. There is no benefit to the child in documenting the parent’s expectations, as the child’s interests are not at risk. Consequently, the parents have little or no understanding of the risk that they will be left without the ability to provide for their own needs.



Musgrave v Musgrave108 is a good example of the need to force more formality in transactions. In this case, the plaintiff father transferred his property to his son for $1.00. The parties saw a solicitor, who explained that the ‘son will be the lawful owner and he could even sell the property’.109 However, she gave evidence that the ‘scheme’ behind the transfer anticipated that the father would live in the granny flat to be built on the property.110 However, this was not put in writing in order to keep their costs low, and they saw no need for a deed of family arrangement.111

In Keremelevski v Keremelevski,112 an older couple transferred their house to their grandson for $1.00. The husband had since died, and the widow had been moved to a nursing home. She sought a resulting or constructive trust, arguing that the property was transferred on the basis that she would be cared for in her own home until death. The evidence was clear that the family had ‘promised to look after her’. On the facts though, Hamilton J concluded that the promise was that she would be cared for, but not necessarily in her own home. She had been cared for by family in her home until they were unable to continue care, and this was when she was placed in a home.

Advice was provided by a solicitor, who attended the signing of the transfer. Of the solicitor’s advice, Hamilton J concluded that ‘on the balance of probabilities’ it was ‘advice that a responsible solicitor was likely to have given in the circumstances’.113 However, the solicitor conceded that ‘he had not told the parents that they might be evicted from the house property after the transfer.’114 Nor, apparently, was any attempt made to suggest a family agreement or clarification of the reasons for the transfer.

Similarly, in Irvine v Irvine,115 a 90 year old female pensioner transferred her house to her nephew and his sons for $1.00. The house was her only substantial asset. Independent advice was provided by a solicitor whom she had not previously met. Barrett J noted that the solicitor:

did not, it appears, satisfy herself on a matter fundamental to safeguarding of the aunt's interests, namely, that the aunt fully understood that the oral promise to allow her to live in the house for life was legally unenforceable, with the result that the occupancy could be terminated at any time...116

The inadequacy of practical advice which clarifies the parent’s position has also been commented upon in England. 117

It is the author’s opinion that option 1 has the most chance to actually reduce the frequency of these disputes.

Option 1: Presuming a trust from a voluntary transfer (and no advancement)


As the law stands, with presumptions of gift, it is not in the interests of the child to ensure the parent has extensive advice. Further, none of the proposals canvassed above are likely to have any impact on how transferors are advised. However, changing the presumption applicable to transfers should have an effect.

If the transaction is presumptively one of trust, parents who wish to make gifts will need to take more steps to ensure that there is evidence of donative intent. Solicitors engaged by the child to arrange the transfer of title will need to advise the child of the presumption. This creates an incentive for the child to ensure that issues of intention are clearly addressed.

Equally, from the parent’s perspective, if the presumption is reversed, adequate legal advice should ensure that a discussion occurs regarding the parent’s expectation of where the beneficial ownership is to lie. If active steps must be taken to demonstrate donative intent, this should result in transferees obtaining more detailed advice. One benefit of this may be that family agreements could become more prevalent, as the parties are forced to spell out in detail what their expectations are.

It is already standard practice for transferees to obtain legal advice prior to transferring their land. If the outcome of the changes is that family agreements are more prevalent, it will necessarily cost more for transferors to have the agreement drafted, as opposed to having verbal advice on the legal effect of the transfer.118

If the family agreement is drafted by the solicitor acting for the transferee, they will also be incurring additional costs, but this is balanced by obtaining the security of knowing that the beneficial interest is intended to pass. Furthermore, the transferee is also benefited by having the expected arrangement formalized, so that in most cases, uncertainties about the parent’s rights will be eliminated. This formal agreement should provide the child with substantial protection against any later challenge by the parent.

There is also another possible benefit from the change. In some cases, it has been suggested that parents have transferred their property solely to divest themselves of legal title to their assets, hoping to avoid paying a bond on later entry into aged care.119 Under the Aged Care Act 1997, the obligation to pay an accommodation bond, and the amount payable, is means tested.120 If a trust, rather than a gift, is presumed, the parent would still have a beneficial interest in the property and would still be obliged to pay the bond. Again, a parent who wants to transfer the property for this purpose will have to demonstrate clear intention to give the property away beneficially, not merely legally.121

This approach generally makes it harder for a parent to prove that the gift was part of an illegal purpose, and therefore has a policy rationale also.

Conclusion


Harmonisation of the law is to be preferred, and the preferred option should be one which assists in preventing these disputes. On that basis, option 1 would be more likely to result in education and change. Solicitors would need to advise children recipients that the transfer will be subject to a trust unless intention to transfer title is clearly spelt out. To the extent that this requires families to formalize their agreements, this is a substantial positive feature of the proposal.

This likely outcome is missing with option 2 and 3, although option 2 otherwise appears attractive as it has the advantage of removing archaic presumptions of trust. The apparent gift will be upheld unless contrary intention is proved.



Irrespective of whether any of these proposals is adopted, as our society ages, there is going to be an increased need for the law to provide relief that is flexible, and addresses the needs of elders wishing to make family care arrangements. As part of that process, the continuing role of presumptions of trust and advancement needs to be addressed. It may be that the question whether these presumptions have a continuing role to play in Australia depends upon an examination of social norms and family relationships. If so, it may well be that reform should only be conducted by Parliament, rather than in the courts. It must, however, be done.



1*BA.LLB (Hons), LLM (Mon), Senior Lecturer, Faculty of Law, Monash University. I wish to thank Dr Matthew Harding and Ms Susan Bartie for their helpful comments on an earlier draft.




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