In order to minimize taxes, avoid probate fees, control distribution or to avoid estate litigation that may result from a Will, some people decide to give away some or all of their assets while they are alive. However, in some cases, giving a gift during your lifetime and outside a Will may lead to litigation to determine whether the person giving away the asset intended to give a gift.
Gifts Made During a Person’s Life
A person may make gifts during his or her lifetime by giving another person a particular item, money or an interest in property. When a person makes a transfer of an item without receiving anything in return, the law presumes that there is a Resulting Trust. A Resulting Trust means that the person who received the transfer of the item holds the item in trust for the person who made the transfer. In other words, the person who made the transfer keeps the beneficial ownership of the transferred item because he or she did not receive anything in return for its transfer. In these circumstances, the person who received the transfer of the item has an obligation to return the item to the person who transferred it.
There are exceptions to the presumption of a Resulting Trust. For example, there is an exception where a parent has given a gift to a minor child. In these circumstances, the law presumes that the parent intended to give a gift to his or her minor child. This exception does not apply where a parent gives a gift to his or her adult children.
The person who received the gift may be able to rebut the presumption of a Resulting Trust and establish that the transfer was indeed intended it to be a gift. In these cases, the law looks to whether the person who made the transfer intended to give a gift or if they made the transfer for some other purpose (and believed that they would have the item returned). If a Court determines that the person who made the transfer intended to give a gift, no Resulting Trust will be found.
Unequal Distribution under a Will
How a person organizes their financial affairs while they are living may result in what seems like an unequal distribution of their financial assets to family members upon that person’s death. Beneficiaries may argue that, due to the presumption of Resulting Trust, gifts that the deceased made during his or her life were meant to be divided within the Will. For example, a person may transfer a large sum of money to his or her adult child to help make a down payment on a house. In this case, the transfer may result in a smaller estate available to be shared by the beneficiaries under the Will. Beneficiaries under the Will may argue that the money advanced was only a loan and that the presumption of Resulting Trust applies such that the money should be returned to the Estate and divided according to the Will.
Making the Gift
When a person wishes to make a gift, he or she may want to clearly demonstrate that it was his or her intention to make a gift and not to have the item returned. For example, in the scenario described above, the parent may wish to create a Deed of Gift – a written document – stating that the money is a gift and that the other party does not need to pay the money back.