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Was it a Loan or a Gift? Does it have to be Paid Back?

In the undocumented world of family relations and finances, money is often provided by one person to another without the exact nature of the transaction being discussed, understood or documented.  Mum provides $20,000 to child to be used towards the purchaser of a house or to fund a year at school.  Granddad pays $15,000 towards a grandchild’s purchase of a business.  Is this money to be repaid?  Is it a gift?  Is it an investment in which the lender now has an interest?  These are common situations which often end in tears and acrimony.  “You were supposed to pay me back”.  “No, you gave it to me as a gift!” 

Quite frequently, the exact nature of what has taken place is not sorted out until one of the parties has died.  It becomes an issue a deceased’s executor must sort out.  One of the methods used by the courts to resolve disputes of this nature is the “presumption of a resulting trust”.  This is rebuttable presumption.  It provides that where an advance of money is gratuitous, the onus is on the person who received it to establish the donor actually intended it to be a gift, not a loan.  This is because the law presumes bargains, not gifts, even between family members.  If it is not proven to be a gift, then the money was received on a resulting trust, meaning it must be paid back.

The B.C. Court of Appeal recently had occasion to apply this legal presumption in the case of Beaverstock v. Beaverstock.  Mrs. Beaverstock provided her son with $50,000 which he used to refinance some land.  The transaction was not documented in any way.  The son then passed away.  His wife, the executor of his will, was to inherit his estate, including the land financed using the $50,000.  The wife knew nothing of the $50,000 provided to her husband by Mrs. Beaverstock.  When her mother-in-law sought its repayment, she took the position the money had been a gift.  There was conflicting evidence of statements the deceased son made about whether the money was a gift or a loan.  The matter ended up in litigation (not a great way to win favour with your mother-in-law).

In finding that the money was a loan which must be repaid, the court applied the presumption of a resulting trust to resolve the matter.  Their analysis began with the assumption the funds had been a loan.  They then looked at whether the evidence was sufficient to rebut this presumption and establish that Mrs. Beaverstock had actually intended the money to be a gift.  The loan was not documented.  There was no date for its repayment or interest payable.  No security had been provided.  There had never been any payments made or any demand for repayment of the loan.  Despite this evidence, the court found that it was not sufficient to establish the “substantive elements of a claim that a gratuitous transfer was a loan and not a gift.” 

As is often the case, problems like this can be avoided if those involved take the simple step of documenting their joint understanding of the nature of the transaction they are involved in.  It certainly makes it easier for those who may be left to sort it out later.


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This blog is authored by members of the Litigation and Dispute Resolution Department. We follow new and interesting issues emerging in the legal and business communities. The wide range of experience among the members of our litigation group will provide a diverse and insightful examination of current legal trends and topics. Our goal is to provide a source of valuable information and insight on a wide variety of matters for our readers.



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