TO GIFT OR NOT TO GIFT, THAT IS THE [INTENTION]
What options are available to reduce the amount of probate tax owed upon death?
This blog is not a one page review of all resources available to minimize probate tax owing. Instead, it is to emphasize caution if the POA for Management of Property considers either a joint bank account between the Grantor and any number of the beneficiaries or begins to gift funds to family members in advance of death.
Doherty v Doherty, 2023 ONSC 1536 (“Doherty”) reiterated that there are important and distinct obligations that are owed from an appointed power of attorney and if any gifts (equal or not) are to be provided to the attorney, prospective beneficiaries or any third party, that such intention must be carefully documented in advance of the transfer.
Plus, a shout out to Applicant Counsel, Kimberly Gale, who I listened to at the 2023 Ontario Bar Association Elder Law Day that she co-chaired – she is definitely a person to keep your eye out for!
A closer look at some facts from Doherty:
- Parties to the action:
- Applicant – Kathleen Doherty (“Kathleen”; daughter of the late Molly Doherty (“Molly”)
- Respondent – Terrence Dorherty (“Terrence”; son of Molly and brother to Kathleen); Sylvia Dorherty (“Sylvia”; wife of Terrence); and Liam Doherty (“Liam”; son of Terrence and Sylvia.
- Terrence was the appointed Power of Attorney for Property (“POA”) on behalf of Molly.
- While Terrence was acting as POA for Molly, there were a series of transfers of funds from accounts that were jointly in the name of Terrence and Molly into accounts held by him, Sylvia or Liam.
- Terrence and his family had a habit of living in the USA for an extended period of time.
- Kathleen was estranged from Molly for a number of years
- After Kathleen investigated into the affairs of Molly, she became concerned to the point that it resulted in an unsuccessful investigation being filed and launched with the OPP – ultimately confirming that that matter was of civil nature and not the jurisdiction of the OPP.
- Molly would later execute a new POA appointing Kathleen as the attorney for management of property. Notably, Molly agreed to a capacity assessment prior to signing the various estate documents.
The issues to be decided:
The issues before the court were to decide if the Power of Attorney had made a valid inter vivos gift from the Grantor and if not, whether Terrence and his spouse were jointly and severally liable for repayment of the invalid gifts.
Outcome:
- There was no evidence of intention to provide a gift to any of the parties and therefore Terrence’s claim that Molly gifted the money is invalid.
- The son had to pay $78,000 back to Molly’s estate within 30 days.
- Terrence and Sylvia were jointly and severally liable to pay back $329,745.02 within 30 days.
“Terrence [the POA] is in breach of his fiduciary duties, and Sylvia [spouse of the POA] knowingly assisted Terrence in the breach of his fiduciary duties and they are jointly and severally liable for $329,745.02”
The Honourable Justice Dietrich in Dorherty at para 92.
Some Key Considerations!
- A voluntary inter vivos gifts requires:
- Intention to make a gift on the part of the donor, without consideration or expectation of remuneration. The intention must be corroborated by evidence.
- Acceptance of the gift by the done;
- A sufficient act of delivery or transfer of the property to complete the transaction. Delivery requires the donor to divest himself or herself of all power and control over the property to the donee.
- A distinct, but related legal criteria to gift requires the decision-maker to:
- Understand the nature of the gift; and
- The ability to appreciate the specific effect of the gift in the circumstances.
*should the gift be one which encompasses substantially the value in the estate, then it is likely that testamentary criteria should be included in the capacity analysis.
- Liability for knowing assistance in breach of a fiduciary duty requires:
- An intentional wrongful act on the part of the “stranger” or accessory, to knowingly assist in the fraudulent and dishonest breach or scheme. See also Air Canada v M.L. Travel Ltd., 1993 CanLII 33 (SCC).
- The Applicant was able to find value in a capacity assessment as support the capacity to sign and revoke Powers of Attorney for Care, Property and sign a new Will.
Do you know of a similar situation and need some information to help get started? Give us a call, we are happy to help.
