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Gifts through the Lens of Doherty v. Doherty, Part Two

Co Written by: Kim Gale and Palak Mahajan

Gifts through the Lens of Doherty v. Doherty, Part Two

In the first article in this two-part series, we discussed the law regarding gifts in Ontario and how the court in Doherty v. Doherty, 2023 ONSC 1536 (Doherty) reinstated the law on inter vivas gifts. This article delves into the decision itself.

Analysis in Doherty

 The dispute was about the property owned by the deceased, Molly Marie Doherty (Molly). The dispute was between Molly's daughter and the applicant, Kathleen Marie Doherty (Kathleen) and the respondents, Molly's son, Terrence Doherty (Terrence), Terrence's spouse, Sylvia Joan Kurkowski Doherty (Sylvia) and their son, Liam Alexander Doherty (Liam).

Molly executed a power of attorney for property dated Nov. 29, 2017, appointing Terrence as her attorney for property and his daughter, Meaghan Marie Doherty (Meaghan) as the alternative attorney. Meaghan was not a part of the proceedings before the court.

During the proceedings, Terrence admitted that while he was acting as Molly's attorney for property $370,822.63 was withdrawn from Molly's bank accounts. Terrence also admitted that this amount $329,745.02 (transferred amount) was transferred into accounts held directly or indirectly by each of Sylvia, Liam and himself.

The court observed that to prove that the funds comprising the transferred amount were gifts, Terrence and Liam ought to show that Molly intended to make the gifts without consideration or expectation of remuneration; that the donee accepted the gift; and that Molly delivered or transferred the funds to complete the transaction.

1.  Molly intended to make the gifts without consideration 

The court opined that there was no documentary evidence presented to evidence Molly's intention to make a gift or a payment of $23,000 to Liam to repay any loans.

The court also stated that there was no evidence of Molly's intention to make a gift of $55,000 to Liam. Both Terrence and Liam referred to the transfer of $55,000 as a loan and as such, this amount cannot now be claimed to be a gift.

Neither Terrence nor Liam had shown that Molly had an intention to make a gift of $55,000 to Liam. At best, she had a loan in mind.

The court also observed that any assertion of the transferred amount being a gift was in contradiction to the capacity assessment report of Molly. The court found that there was no evidence on record showcasing Molly's intention to gift the transferred amount to Terrence or Sylvia.

2.  Terrence and Liam accepted the gift

Terrence claimed that he was the joint bank account holder of Molly's bank accounts and was given access to the funds.

The court was not able to find that Molly intended to make Terrence a joint account holder of her bank accounts with full access to the accounts for his own purpose and Terrence accepted the gift. Similarly, there was nothing to show the acceptance of the amount transferred to Liam being a valid acceptance for the purposes of a gift.

3.   Molly delivered or transferred the funds to complete the transaction

The court observed that even if it could be shown that Molly had intended to make the gift of $23,000 to repay the loan for Liam, there is no evidence that Molly, herself, delivered or transferred the funds to complete the transaction, or that she specifically directed or authorized Terrence to make the gift on her behalf from her CIBC account.

The court also found that Molly did not make a sufficient act of delivery or transfer of the CIBC bank accounts to Terrence to complete the transaction. Molly could have added Terrence as a joint owner with a beneficial interest in the CIBC accounts, or she could have written a cheque to him in the amount of the transferred amount.

As a result, the court found that the sum of $78,000 transferred to Liam and the sum of $246,745.02 comprising the transferred amount, which Terrence removed from Molly's CIBC bank accounts, the bulk of which was transferred to bank accounts registered to Sylvia, was not an inter vivas gift to Terrence or Sylvia.

Judgment in Doherty

The court made the following declarations:

  • Declaring that $329,745.02 (the transferred amount) that Terrence removed from Molly's CIBC accounts was not an inter vivas gift in whole or in part to Terrence or Liam, or both.
  • Directing Liam to make restitution by repaying $78,000 of the transferred amount to Molly's estate within 30 days.
  • Declaring that Terrence is in breach of his fiduciary duties, and Sylvia knowingly assisted Terrence in the breach of his fiduciary duties, and they are jointly and severally liable for $329,745.02.
  • Directing the respondents to pay the applicant's full indemnity costs of the application.

Court of Appeal proceedings

Terrence and Sylvia challenged the judgment of the Superior Court before the Court of Appeal for Ontario. The judgment was challenged on the limited ground that the application materials filed before the Superior Court were not properly served upon Terrence and Sylvia.

The Court of Appeal in Doherty v. Doherty, 2023 ONCA 763 rejected the appeal and noted the following:

Instead of engaging with the merits of the application judge's decision, the appellants have focused their appeal on the issue of the service of the notice of application. This position is without merit [...]

[...]

The appeal is dismissed. The appellants shall pay the respondent her costs of the appeal, which we fix in the all-inclusive sum of $24,000.

The judgment of the Superior Court which has not been interfered with by the Court of Appeal, the law on inter vivas gifts has been clarified and set in stone. The three necessary elements to prove a gift are: (1) Intention; (2) Acceptance; and (3) delivery.

If these three tests are met with, a gift will be a valid inter vivas gift.

This is the second of a two-part series. Read the first article: Gifts through the lens of Doherty v. Doherty, part one.

This article was originally published by Law360 Canada part of LexisNexis Canada Inc.

Navigating the digital future: Law Society of Ontario’s virtual verification update

Navigating the digital future: Law Society of Ontario's virtual verification update

Co-written by: Kim Gale and Jessica Campolucci

New year, new rules! The Law Society of Ontario (LSO) has started the new year by implementing virtual verification requirements for lawyers and paralegals, effective Jan. 1/24. As Canadian society moves towards a more digital world, the legal profession is continuing to follow suit by adopting new virtual practices as financial misconduct and fraud continue to be a serious concern in Ontario.

In this article, we will delve into the essential components of these regulatory changes, aiming to provide a simple yet comprehensive understanding of their implications within the legal profession.

Why virtual verification?

In an era where digital advancements intersect with everyday life, the LSO recognizes the need for enhanced security and efficiency in all areas of law. The move to virtual verification is driven by a desire to combat

money laundering, mortgage fraud and identity fraud, which pose significant risks to the legal profession, especially in this post-COVID era.

When should I verify?

Identity verification of a client, third party or individual authorized to give instructions on behalf of an organization becomes required in various financial transactions, specifically when you are retained to provide legal services and you engage in or give instructions involving the receipt, payment, or transfer of funds. There are exemptions to this rule (s. 22(2) - (4) of by-law 7.1 under the Law Society Act). Some examples of when verification is required are when sending or receiving settlement funds or when dealing with certain real estate transactions. Note that whenever you are receiving funds for fees and disbursements from a client, verification is not required.

The importance of authentication

Lawyers and paralegals are now required to authenticate an individual's government-issued photo ID when using video conference or other virtual communication methods to verify their identity. Simply comparing the photo ID to an individual on a screen won't cut it anymore - a more digital, accurate process is now required.

How can I authenticate?

Lawyers and paralegals will need to meet with the individual virtually and employ two main methods for virtual authentication:

  1. Scanning with technology: Individuals scan their government-issued ID using a mobile phone or electronic device; and
  2. Comparing features: Technology is utilized to compare various features and security elements of their ID, ensuring its legitimacy.

Technology at your fingertips

 To use these two main methods, The Digital Identification and Authentication Council of Canada (DIACC) has compiled a directory of products that use biometric facial scans and government-issued IDs for verification.

For ease of reference, here are a few authentication technology platforms that may suit your needs:

  • Vaultie digital trust solutions
  • Treefort
  • lKosmos
  • Applied Recognition
  • AuthenticID

Note that each platform may have their own processes and costs associated. Some solutions even integrate with certain legal software, such as Clio, and real estate applications, which can help with data storage. It is advisable to thoroughly review each platform to identify one that aligns with your specific needs.

Alternative methods for virtual verification

Digital changes can be overwhelming for some. If virtual verification doesn't work for you (or your clients), there are three alternative methods for remote identity verification:

  1. Credit file method: Rely on information in an individual's Canadian credit file that has been in existence for at least three years.
  2. Dual process method: Use any two of three pieces of information from a reliable source containing the individual's name and address, name and date of birth or name which confirms they have a deposit account, credit card or other loan amount with a bank.
  3. Agent method: Have an agent meet with the individual to verify their identity through a written agreement.

No matter what method you choose, be sure to record the method used, along with the date.

Final thoughts

In summary, the LSO's virtual verification requirements signify a progression in the legal profession. By embracing technology, the legal community can address emerging risks while ensuring accessibility and efficiency. However, it's crucial to consider the potential impact of these changes on clients, especially in areas like estate litigation, where the average client demographic may be older. The introduction of new, virtual technologies might not always be appropriate and could pose difficulties. In some cases, choosing not to adopt virtual verification and opting for in-person methods or alternative virtual practices might be more appropriate.

As discussed, before using any virtual verification practice, be sure to thoroughly review all available software options. For more information and resources on the virtual verification process, review the LSO's website and all application rules and by-laws.

 

This article was originally published by Law360 Canada part of LexisNexis Canada Inc.

 

Gifts through the Lens of Doherty v. Doherty, Part One

Gifts through the Lens of Doherty v. Doherty, Part One

Co-written by: Kim Gale and Palak Mahajan

The law of gifts was at issue in the Ontario Superior Court of Justice in Doherty v. Doherty, 2023 ONSC 1536 (Doherty), upheld by the Court of Appeal.

The court in Doherty reinstated the law on inter vivas gifts.

The court considered the law on gifts, the three-part test that a donee must meet to prove a gift, the necessity of delivery of a gift and the evidence needed to corroborate the intent of a gift. The court held that the claim by the respondent in Doherty relating to the gift was unfounded and did not meet the laid down test to prove a gift. Through this two-part series of articles, the authors will discuss the law on inter vivas gifts as reiterated by the court in Doherty.

 Inter vivos gifts                                                                                                      

"Inter vivas" is a Latin phrase that means "during life" or "among the living." As such, an inter vivas gift or inter vivas transfer, refers to any gift or transfer made by someone while they are alive. In the simplest terms, an inter vivas gift is property that was transferred while the gift-giver was living.

Inter vivos gifts can be anything - cash, financial accounts, real estate or even joint tenancy in a property.

Benefits of inter vivos gifts

Inter vivas gifts are an extremely powerful estate planning tool. When an inter vivas gift is given, the asset will not be considered part of the deceased's estate. This saves on estate administration tax on the asset and the donee will receive the asset much sooner than if it went through the estate administration process. However, for an inter vivas gift to be legally binding, it must meet certain thresholds, discussed in the later part of this article, and elaborated by the court in Doherty.

Facts/background of Doherty: Cast of characters

  1. The dispute was about the property owned by the deceased, Molly Marie Doherty (Molly). The dispute was between Molly's daughter and the applicant, Kathleen Marie Doherty (Kathleen) and the respondents, Molly's son, Terrence Doherty (Terrence), Terrence's spouse, Sylvia Joan Kurkowski Doherty (Sylvia) and their son, Liam Alexander Doherty (Liam).
  2. Molly executed a power of attorney for property dated 29, 2017, appointing Terrence as her attorney for property and his daughter, Meaghan Marie Doherty (Meaghan) as the alternative attorney. Meaghan was not a part of the proceedings before the court.
  3. Thereafter, on June 14, 2018, Molly executed a new power of attorney with property with the assistance of a lawyer. She appointed Terrence as her attorney for property and Sylvia as her alternative attorney for property. Molly also executed a will in which she left the residue of her estate to Terrence and failing Terrence, to Sylvia.
  4. Molly owned one house and the same was sold on 10, 2018. The Agreement of Purchase and Sale was signed by Molly and Terrence in his capacity as attorney for property. The house was sold for $260,000 and proceeds of $243,418.95 were deposited in Molly's account on Oct. 2, 2018.
  5. Between June 1, 2018, and Aug. 14, 2019, more than $370,000 had been withdrawn from Molly's bank account. Terrence did not dispute that within 20 days of the deposit of proceeds of $243,418.95 from the sale of the house, he arranged for a total of $230,000 to be transferred to Sylvia and
  6. During this time, on Aug. 2, 2019, Kathleen arranged for a capacity assessment of Molly. It was assessed that Molly met the legal criteria to assign/revoke a power of attorney for property and power of attorney for personal care.
  7. On 13, 2019, Molly executed a new power of attorney for property and a new power of attorney for personal care. In both these powers of attorneys she appointed Kathleen as her attorney. She also executed a new will in which she appointed Kathleen as her estate trustee, and she bequeathed her estate to the applicant and Meaghan in equal shares.
  8. Molly died on 11, 2019, at 84 years of age.

Application by Kathleen 

  1. Initially, Kathleen filed an application seeking an accounting from Terrence for $709,515.01 (the sum appearing to be missing from Molly's bank accounts).
  2. During the proceedings, Terrence admitted that while he was acting as Molly's attorney for property $370,822.63 was withdrawn from Molly's bank accounts. Terrence also admitted that this amount $329,745.02 (transferred amount) was transferred into accounts held directly or indirectly by each of Sylvia, Liam and himself.
  3. Liam admitted that he received $78,000 of the transferred amount. Liam claimed that $23,000 was a gift to him from Molly and the remaining $55,000 was a loan.
  4. The court found that the transferred amount was not a gift and that Terrence and Sylvia were jointly and severally liable for the damages arising from the wrongful removal of the transferred

Law regarding gifts

The court discussed the law on gifts extensively. The definition of "gift" was discussed in McNamee v. McNamee, 2011 ONCA 533, at para. 23 to be a voluntary transfer of property to another without consideration. Further, to make a delivery or transfer, the donor must divest himself or herself or all power and control over the property and transfer such control to the donee.

In Kavanagh v. Lajoie, 2014 ONCA 187, the Ontario Court of Appeal opined:

For a gift to be valid and enforceable it must be perfected. In other words, the donor must have done everything necessary and in his power to effect the transfer of property. An incomplete gift is nothing more than an intention to gift. The donor is free to change his mind. Bergen v. Bergen [2013] B.C.J. No. 2552.

The Court of Appeal for Ontario in Teixeira v. Markgraf Estate, 2017 ONCA 819 at para. 38, set out the three-part test that a donee must meet to prove a gift. The donee must show:

  1. An intention to make a gift on the part of the donor, without consideration or expectation of
  2. Acceptance of the gift by the
  3. A sufficient act of delivery or transfer of the property to complete the

Section 13 of the Evidence Act, R.S.O. 1990, c. E. 23 states that a claimant may not obtain a decision "on his or her own evidence in respect of any matter occurring before the death of the deceased person, unless such evidence is corroborated by some material evidence."

In Bakken Estate v. Bakken, 2014 BCSC 1540, the court examined the evidence a judge can consider when deciding a transferor's or giftor's intentions:

  • A party opposing the claim of a gift may adduce evidence of intent that arose sometime after the transfer occurred. The modern rule is that evidence of intention that is not contemporaneous to the time of transfer, or nearly so, should not be excluded.
  • For evidence to be included, however, the judge must find it relevant to the intention of the transfer at the time of the transfer, and the trial judge must assess its reliability, guarding against self-serving evidence that tends to reflect a change in intention.

This is the first of a two-part series.

 

This article was originally published by Law360 Canada, part of LexisNexis Canada Inc.

 

Gale Law in the Ontario Reports

We are so excited to announce Gale Law in the Ontario Reports!

We practice estate litigation, meaning we handle disputes regarding a will, inheritance, executors, guardians and we have helped common law spouses seek support as a dependant. We are open evenings & weekends (literally 24/7) and we are always here for our clients. We offer free consultations and our advice is easy to understand and straightforward. Referrals are always appreciated!

Ontario Reports Announcement

http://digital.ontarioreports.ca/ontarioreports/20190208/?pg=45&pm=2&u1=friend