What You Need to Know About Gifts in Estate Planning

Estate planning can be emotionally charged, especially when complex family dynamics are at play. One area that often leads to confusion and disputes is the transfer of assets during a person’s lifetime, known as inter vivos transfers, and whether these transfers are considered gifts or assets held in trust for the estate.

The Case of Franco v. Franco Estate

A recent case, Franco v. Franco Estate, 2023 BCSC 1015, deals with inter vivos transfers to adult children. The decision explains the legal characteristics that determine whether the transfer is classified as a gift as opposed to an asset held in trust for the estate.

The case involved a father who had a strained relationship with two of his three children. To avoid future legal issues, he made several inter vivos transfers to his daughter, which included joint bank accounts and properties held as joint tenants. These transfers amounted to approximately $2.3 million.

The deceased’s will also named his daughter, Ms. Lowe, as the executor and sole beneficiary of his estate. However, due to the inter vivos transfers, all assets passed to Ms. Lowe by way of right of survivorship, effectively bypassing the estate and leaving nothing for the other children.

The Legal Issue: Gifts or Assets Held in Trust?

The core issue in this case was whether the transfers to Ms. Lowe were intended as gifts or whether they were assets held in trust for the estate. The plaintiff, one of the disinherited children, sought to bring the assets back into the estate and argued that the will should be varied as he was effectively disinherited.

The court had to determine whether the transfers met the requirements for a legally binding gift. According to British Columbia law, as summarised in the Court of Appeal decision in McKendry v. McKendry, 2017 BCCA 48,

• A gift is a gratuitous transfer made without consideration. Two requirements must be met for an inter vivos gift to be legally binding: the donor must have intended to make a gift and must have delivered the gift to the donee (recipient)—this is the primary consideration. Also, the donor must have done everything necessary, according to the nature of the property, to transfer it to the donee and render the settlement legally binding on him or her (Kooner at 79-80; Pecore at para. 5).
• A  gift may be delivered in various ways. For example, a donor may choose to transfer property directly to a donee or a trustee, or may retain possession and make a declaration of trust. Once a gift is given, the donor cannot retract it. So, where there is a promise or unfulfilled intention to complete the transfer of the gift, the court will not intervene to complete the transfer: Kooner at 79-80; Pecore at para. 56.

This case reaffirms that two key elements are required for a legally binding gift:

1. Intent: The Donor must have intended to make a gift (at the time of the transfer).
2. Delivery: The donor must have delivered the gift to the done, completing the transfer.

In this case, the plaintiff argued that the deceased had not fully delivered the gift because he retained control over the bank accounts and assets, continuing to fully manage them even after the transfer to Ms. Lowe. The court considered that these types of transfers are common within a family and found overwhelming evidence that the deceased specifically intended to transfer assets to Ms. Lowe outside of the estate. The court relied on evidence from Ms. Lowe, a niece, and the deceased’s financial advisor for this piece.

The Court’s Decision

The court ultimately held that the inter vivos transfers were indeed gifts to Ms. Lowe. The deceased’s intention was clear: he wanted Ms. Lowe to benefit from the assets outside of the estate. The fact that he continued to manage the jointly owned assets did not invalidate the gift. The right of survivorship itself was the gift, passing the assets to Ms. Lower directly and solidifying her ownership.

What This Means for You

This case highlights the importance of clear intent and proper execution in estate planning, especially when making inter vivos transfers. It is not always clear whether the transfer of an asset was intended to be a gift or whether it should correctly form part of the estate.

If you are a child or spouse and have been excluded from a will, or if you are a disappointed beneficiary, you have a legal right to contest a will. It is important to seek a legal opinion to determine the full value of an estate and your potential entitlement. Contact us for a free consultation.