Mar 4, 2015

Presumptions of Resulting Trust and Advancement: Madsen Estate v Saylor and Pecore v Pecore

Pecore v. Pecore, 2007 SCC 17, [2007] 1 SCR 795

Earlier this year, the Supreme Court of Canada (“SCC”) concurrently released judgments in Madsen Estate v Saylor, 2007 SCC 18 [Madsen Estate], and Pecore v Pecore, 2007 SCC 17 [Pecore], a pair of cases regarding the disposition of monies from joint bank and investment accounts shared by a parent with an adult child. Through these two cases, the SCC clarified the current state of the common law with respect to the presumptions of resulting trust and advancement for gratuitous transfers between parents and their children.

Background

The facts in the two cases are quite similar and for our purposes it is unnecessary to go into them separately or in great detail. Each case involves a father who opens and desposits a large sum of money into a joint bank and investment account which is shared with an adult daughter. After the father passes away, ownership of the contents of these accounts passed to the daughter, since these accounts carry a right of survivorship. However, the daughter’s entitlement to these funds is challenged by other beneficiaries in the father’s will who claim that they were not intended as gifts and should be included with the disposition of the rest of the father’s estate.

The aim of a court in these situation is to determine whether or not the true intention of the father in creating the joint account was to provide a gift to his daughter. The common law has developed a rebuttable presumption that in situations where a gratuitous transfer is challenged, the transferee bears the burden of proving on a balance of probability that this transfer was indeed a gift; otherwise, it is a resulting trust, where the property is held by the transferee on behalf of the transferor, who still retains equitable title.

While this is the general rule, there is an exception to this presumption when the transfer is made from a father and to one of his children. In these situations, the presumption of advancement reverses the onus so that such transfers are presumed to be gifts unless the person challenging the transfer can prove that it was not intended as such.

The SCC Decision

The SCC used Pecore as the lead case and the judgment in that case enunciated the principles which were then applied to the facts of Madsen Estate. In Pecore, the SCC held that the common law principles of the presumption of resulting trust and the presumption of advancement are still relevant today. Furthermore, while the presumption of advancement originally only applied to transfers made by fathers, the SCC held that in contemporary society, woman have both the means and obligation to care for their children. The SCC concluded that there is no reason why the same presumption should not apply to transfers made by mothers to their children.

On the other hand, the SCC restricted the application of the presumption of advancement to situations where the parent makes a transfer to a minor child. According to the majority, the main rationale for this presumption is that a parent has the obligation to care for minor children and that this obligation ends as the child becomes an adult. Further, a gratuitous transfer by a parent to an adult child could be made for reasons other than to care for them; for example, aging parents may transfer assets into a joint account with adult children so that the child can help them in managing their financial affairs. Thus, the majority held that gratuitous transfers by parents to their adult children will carry a presumption of resulting trust.

Justice Abella alone disagreed with the majority on this point and wrote a separate judgment in both cases. In her view, the historical rationale behind the presumption of advancement was based not only in parental obligations but also in parental affection to their children. She held that the presumption of advancement should apply to gratuitous transfers from parents to adult as well as minor children.

While the divergent approach of the majority and the minority made little difference to the result in Pecore, it formed the basis for the different results in Madsen Estate. In Pecore, both judgments held that there was sufficient evidence to support the assertion that the joint account constituted a gift by the father to his daughter, regardless of which presumption was used. However, in Madsen Estate, Justice Abella relied upon the presumption of advancement to hold that the joint account was a gift, despite the lack of corrobatory evidence. The majority judgment held that the daughter could not provide sufficient evidence to overcome the presumption of resulting trust.

Thus, while these presumptions may not matter in cases where there is sufficient evidence to prove the intentions of transferor, often these disputes arise where the transferor is unavailable or has passed away and such evidence is difficult to obtain. The SCC’s judgments in these two cases help to provide certainty and to allow persons in similar situations to manage their affairs in a predictable manner.