Gifts from elderly parents-why age should matter
Financial abuse is the most prevalent form of elder abuse after psychological abuse. While the law provides remedies for financial abuse, an older person is usually no better placed to avail themselves of these remedies than they were to prevent or protect themselves against the abuse in the first place. This is particularly the case in transactions between an ageing parent and their adult children, where arrangements are often informal and based on trust. Ironically, it is to these transactions that the presumption of advancement applies. The presumption of advancement operates to impute an intention, where it is absent or unclear, on parties in certain relationships, such as parent and child, that a gratuitous transaction between them was a gift. This leaves the ageing parent, who may have since lost capacity, with the onerous burden of proving that the arrangement was not a gift and that the property or contribution towards the acquisition of the property is held for them in resulting trust. In an aging population, where ageing parents are becoming increasingly more dependent on their children for care and assistance, it may be time to rethink the application of the presumption of advancement.
The source/nature of the problem
The increase in life expectancy (due to various factors including increased knowledge of health care and advancements in medical science) has resulted in an increase in the number of people living with “age related” disabilities . In order to manage, a growing number of parents are entering into arrangements with their children that involve the conferral of a significant benefit on the child. The most common examples include the contribution of funds, usually the proceeds of sale of the parent’s home and only asset, towards the purchase of a property in the adult child’s name or the construction of a granny flat or extension on a property owned by the adult child. Alternatively, it could also take the form of a direct transfer of the parent’s home to the adult child. Typically, the parent does not obtain independent legal advice and does not have the arrangement documented, usually to save on costs and because the parent does not appreciate the need for advice and/or formal documentation. In the absence of documentation making provision for the recovery of the benefit, should the arrangement either collapse or cease to be suitable, reliance is placed on various equitable remedies, with varying degrees of success.
Inadequacy of the remedies
In its report Elder Abuse-A National Legal Response, the Australian Law Reform Commission identified inadequacies in the remedies currently available to older people who have entered into informal arrangements with their family in exchange for care:
- The resulting trust does not apply to direct transfers of property or whenever the presumption of advancement applies;
- Undue influence or unconscionability cannot be established because most transactions are entered into freely by a then capable and independent older person and are mutually beneficially at the outset;
- Constructive trust restricts recovery to the value of the contribution and not the increased value and there are no expectation damages.
While it would be open to the older person to seek a remedy in estoppel, it would still be incumbent upon them to establish their case. Accordingly, the position of the ageing parent could be greatly improved if Australia followed the Canadian approach to the application of the presumption of advancement.
The Canadian approach
In Canada, the presumptions of resulting trust and advancement apply to direct transfers of property as well as contributions towards the acquisition of property in another person’s name. However, following the decision of the Supreme Court of Canada in Pecore v Pecore , the presumption of advancement no longer applies to the conferral of benefits from a parent to an adult child. The arrangement gives rise to a resulting trust in favour of the parent unless the adult child can prove that the arrangement was a gift.
The case concerned a dispute between a daughter and her ex-husband over the fate of the proceeds of an account held jointly in the name of the daughter and her since deceased father. The account consisted of deposits into the account made solely by the father. He maintained control over the account and paid the applicable capital gains tax on the income from the account. If the balance of the proceeds of the account valued at about $1million at the date of death were found to be a gift, the account would pass to the daughter by survivorship. If not, it would be an asset of the estate of which the ex-husband was a residuary beneficiary equally with the daughter.
The court dismissed the appeal. Rothstein J, delivering the judgement of the majority and relying on the statement made by Lord Nottingham in Grey (Lord) v Grey (Lady) “…Obligation which lies on the Father in Conscience…” found that the presumption of advancement arose out of an obligation on a parent to provide for a child. In considering the issue of whether the presumption should apply between a parent and an adult independent child, his Honour referred to a number of earlier Canadian cases that had concluded that it should not. The comments of Heeney J in McLear v. McLear Estate that are reproduced in the judgement are of particular relevance:
Just as Dickson J. considered “present social conditions” in concluding that the presumption of advancement between husbands and wives had lost all relevance, a consideration of the present social conditions of an elderly parent presents an equally compelling case for doing away with the presumption of advancement between parent and adult child. We are living in an increasingly complex world. People are living longer, and it is commonplace that an ageing parent requires assistance in managing his or her daily affairs. This is particularly so given the complexities involved in managing
investments to provide retirement income, paying income tax on those investments, and so on. Almost invariably, the duty of assisting the ageing parent falls to the child who is closest in geographic proximity. In such cases, Powers of Attorney are routinely given.
Names are “put on” bank accounts and other assets, so that the child can freely manage the assets of the parent.
Given these social conditions, it seems to me that it is dangerous to presume that the elderly parent is making a gift each time he or she puts the name of the assisting child on an asset. The presumption
that accords with this social reality is that the child is holding the property in trust for the ageing parent, to facilitate the free and efficient management of that parent’s affairs. The presumption that
accords with this social reality is, in other words, the presumption of resulting trust.
Relying on the rational for the presumption of advancement, being the parental obligation to provide for a child, Rothstein J concluded that the application of the presumption should cease at adulthood when the parental obligation to provide for the child ceases. His Honour also recognised there would be circumstances where an adult child may be under an obligation to provide for a parent and “that it is common nowadays for ageing parents to transfer their assets into joint accounts with their adult children in order to have that child assist them in managing their financial affairs.” He concluded that there should “be a rebuttable presumption that the adult child is holding the property in trust [resulting trust] for the ageing parent to facilitate the free and efficient management of the parent’s affairs” but found that in this case, there was evidence of an actual intention to make a gift .
In a separate judgement, Abella J agreed with the decision of the majority to dismiss the appeal but held that the presumption of advancement applied to voluntary transfers from a parent to a child irrespective of age. Her Honour expressed the view that the presumption of advancement arose from parental love and affection for a child and did not diminish with age. This view has found some support.
The case of Madsen Estate v Saylor was decided concurrently with Pecore. It also concerned the fate of the balance of the funds in a joint account held by an adult daughter and her since deceased father in similar circumstances to those in Pecore, namely, the funds were deposited in the joint account by the father and he maintained control of the account and paid the relevant taxes. The majority applied the presumption of resulting trust on the basis that the daughter was an adult and found that the presumption was not rebutted by the evidence. In a dissenting judgement, Abella J applied the presumption of advancement, allowed the appeal of the daughter and ordered a new trial.
Neither Pecore nor Madsen’s Estate were concerned with elder abuse, although Abella J does appear to acknowledge in Pecore that concerns about elder abuse may be the reason for the imposition of the age restriction on the presumption:
The fact that some parents may enter into joint bank accounts because of the undue influence of an adult child, is no reason to attribute the same impropriety to the majority of parent-child transfers. The operative paradigm should be based on the norm of mutual affection, rather than exceptional exploitation of that affection by an adult child.
The significance of the decisions, particularly that of Pecore which sets out the history of the presumptions and analysis of the law in this area, is that they recognise that there has been a change in “social conditions” and that application of the presumption of resulting trust to gratuitous transfers between a parent and adult child is consistent with the current social climate.
The Canadian approach as a tool for the prevention of elder abuse
The benefits of adopting the Canadian approach are twofold: Firstly, it shifts the burden on the adult child to prove that a voluntary transaction with a parent was a gift thereby relieving the aging and potentially incapable parent from the burden of having to disprove a gift and substantially improving their prospects of recovering their contribution. Secondly, it operates as an incentive on both parties to put substantial gifts, if not all their arrangements, in writing.
Ordinarily a person challenging a transaction bears the burden of establishing their case. In the case of gratuitous transactions, the presumption of resulting trust operates to reverse the burden of proof; the recipient rather than the donor bears this burden. Where the arrangement is informal, the burden of proving that a gift was intended can be particularly difficult to discharge with the result that the donor (ageing parent) invariably recovers his or her contribution. Conversely, where the presumption of advancement applies, it is the donor who bears the burden of disproving the intention to make a gift. If the arrangement is informal, there would be little, or no evidence of a different intention and the donor (ageing parent) will need to rely on another remedy to recover his or her contribution. The effect of the operation of the presumption of advancement on certain transactions between ageing parents and their children is therefore to deprive the ageing parent of the remedy of a resulting trust. If the presumption of advancement were to cease to apply to adult children such that the resulting trust would apply , this would have the effect of improving the recovery rate of contributions made by ageing parents towards the acquisition of assets in their children’s name.
One argument against the imposition of a resulting trust is that a person wishing to create a trust is free to do so. While this may be the case, it fails to appreciate the current social reality that the relationship between parent and adult child changes as the parent ages and can even undergo a complete role reversal with the parent becoming dependent on the child for care. Consequently, a parent may not always be well placed to create an express trust. Arguably, a more insightful and realistic view is that advanced by Dr Susan Barkehall-Thomas that if the presumption of resulting trust were to apply to voluntary transactions from parent to adult child instead of the presumption of advancement, a parent wishing to make a gift would take the necessary steps to document the gift. And, further, the adult child would not stand in the parent’s way. In other words, it would be in everyone’s interests for the transaction to be documented to ensure that the adult child receives the benefit of the gift, assuming that is what was intended. If not, it is more likely than not that the intention would have been documented.
to protect the interests of both parties. This is because an adult child at risk of receiving nothing for the care they have undertaken to provide to a parent is more likely and better placed to take steps to protect their interests than an ageing parent who is dependent upon and reposes trust in their child.
In New South Wales, as in many other Australian jurisdictions, the presumption of resulting trust and the presumption of advancement only apply to the conferral of benefits that are contributions towards the acquisition of property in another person’s name or with another person to the extent of the contributions. They do not apply to direct transfers of real property . In the absence of legislative amendment, a person wishing to recover real property voluntarily transferred to another person, must also establish that the transfer was the product of undue influence or unconscionable conduct. While this may be unsatisfactory and may curtail the effectiveness of the Canadian approach as a tool for the prevention of elder abuse in Australia, the adoption of the Canadian approach would assist many ageing parents to recover their contributions when informal arrangements do not work out.
Scope for adopting the Canadian approach in Australia
The change in social circumstances that justified the revision of the application of the presumption of advancement in Canada exist in Australia as do concerns over elder abuse. Given that the purpose of the presumptions is to determine the intention of the donor in circumstances where there is no evidence of intention or where it is equivocal, it would not be appropriate and may even be “dangerous” to continue to apply presumptions that no longer reflect the thoughts and practices of society.
In his dissenting judgement in Calverley v Green, Murphy J, stated:
Presumptions arise from common experience (see Actors Equity v Fontana Films [1982] HCA23; (1982) 150 CLR 169, 213-215). If common experience is that when one fact exists another fact also exists, the law sensibly operates on the basis that if the first is proved, the second is presumed. It is a process of standardised inference. As standards of behaviour alter, so should presumptions, otherwise the rational for the presumptions is lost, and instead of assisting the evaluation of evidence, they may detract from it. There is no justification for maintaining a presumption that if one fact is proved, then another exists, if common experience is to the contrary.
In the same case, in relation to the relationships that attract the presumption, Dean J stated:
It is arguable that they should be adjusted to reflect modern concepts of equality in status and obligation of a wife vis a vis a husband… and a mother vis a vis a father…Any adjustment of those relationships must however be made by reference to logical necessity and analogy and not by reference to idiosyncratic notions of what is fair and appropriate.
In Nelson v Nelson the High Court of Australia had no difficulty extending the application of the presumption of advancement to voluntary transfers between mothers and their children in response to changed social circumstances:
In modern society there is no reason to suppose that the probability of a parent intending to transfer a beneficial interest in property to a child is any more or less in the case of a mother than a father.
The egalitarian nature of modern Australian society, including as between the sexes” demands no less
… the mother as well as the father now has a legal obligation to support their child… it would not accord with the reality of society today for the law to presume that only a father has a moral obligation to support or position to advance the interests of a child of a marriage……
…the presumption of advancement itself may not accord with contemporaneous practices and modes of thought….A presumption is a useful aid to decision making only when it accurately reflects the probability that a fact or state of affairs exists or has occurred… If presumptions do not reflect common experience today, they may defeat the expectation of those who are unaware of them.
If many ageing parents are entering into arrangements with their adult children in exchange for care so as to avoid placement into aged care, as often appears to be the case, or to obtain assistance with the management of their finances, then they are doing so primarily for their own benefit and the inference that the arrangement was entered into for the advancement of the child is not available. While such a parent may not be concerned that the child receives the benefit of the contribution upon their death, this is not the same thing as an intention to make a gift that takes effect while the parent is alive. Of course, it would still be open to the court to find the existence of an intention to gift, as Rothstein J did in the Canadian case of Pecore , but the court would do so on the evidence of the child and not by reason of the ageing parent’s inability to give evidence to disprove the gift or prove a different intention.
Like the Supreme Court of Canadian in Pecore, the High Court in Nelson also relied on the imposition of parental obligations under the Family Law Act to extend the presumption to mothers:
…Now unlike then, the Family Law Act 1975 (Cth) imposes upon both parents” the primary duty to maintain the child”, the object being to ensure “that parents share equitably in the support of the children” (118). Those provisions reflect the changed responsibility as between parents for the maintenance of their children and hence in their relationship with their children.
Section 66B (1) of the Family Law Act 1975 (Cth) imposes on parents of a child “the primary duty to maintain the child” No distinction is made between father and mother…” the parents share equitably in the support of their children…
Noting that the definition of child did not have an age restriction, Toohey J stated:
While, in the case of many adult children, the statutory obligation cast on parents may have no practical consequences the obligation is there.
Dean J in Calverley also thought that the presumption was based on obligation rather than natural love and affection:
The exceptional cases in which equity assumes an intention of “advancement” and thereby precludes a presumption of resulting trust are defined by reference to recognised categories of relationships rather than by actual presence of love and affection. Originally, those relationships were the ones which equity saw as involving obligations of support…
If the position of the courts in Australia is the presumption is rooted in parental obligations, as appears to be the case, the restriction of the presumption to minors would be a plausible development in view of the changed social circumstances.
Conclusion
In view of the changing circumstances of older persons and society’s attitude towards elder abuse, a solicitor acting for an older client, who wishes to enter into an arrangement with an adult child, would be wise to advise the client of the need to be very clear as to whether or not a contribution is intended to be a gift. This advice would be in addition to advice about the social security implications of the arrangement and the other pros and cons. Otherwise, either the intended gift to the adult child or the contribution of the older client could be lost depending on the position taken by the court to the application of the presumption of advancement at the relevant time.