Where There’s Smoke There’s Fire … and an Estate Lawsuit Based on Pecore

Here’s a secret that even some lawyers don’t know. Read this now to avoid being dragged into an estate lawsuit after someone you love has died.

Assume your 87-year-old mother wants to give you her home.

You say, “Great!” But what about Carlos (your brother)? What will he get?
Will he hate me? Should we tell him? Should we have a family meeting to discuss this?

Your mother tells you she will speak to her lawyer. “Don’t worry.” She says, “It’s my money, after all. I can do what I want with it.”

Mom then makes her will and divides all her estate equally between you and your brother, Carlos. But then mom is told that she should transfer her home to avoid the probate tax. This is roughly a tax of $15,000 for every million dollars of her estate’s value.

Your mother has some investments and her house. She wants to transfer her house to you before she dies. She thinks this is doing you a favour.

Mom wants to save you the $15,000. Can you blame her? She decides to put you on title on the home. Was she making a gift of the home to you? Do you need to share the home with Carlos?

Depends on who you ask.

Is What Mom Did Wrong?

Mom’s real estate lawyer says it’s a good idea to reduce the $15,000 in taxes. Since you live with mom, there’s no income tax to worry about, the lawyer says.

The trouble is that the Supreme Court of Canada’s 2007 decision in Pecore (See Pecore v. Pecore, 2007 SCC 17 (CanLII), [2007] 1 SCR 795, paras. 20-22) raises questions about this transaction. It can be suspicious, especially for estate purposes. This is like smoke to an estate litigation (court) lawyer who handles estate disputes. Their clients want to know if the gift is valid. Their lawyers search for the fire.

It is expensive for you to hire lawyers to defend your gift.

The Pecore Principle

Your brother’s lawyer claims, on the basis of the Pecore case, that:

…whenever a parent transfers gratuitously [free of charge] any kind of property to an adult child the law presumes that the child was holding that property in trust for the parent.

That’s from the Supreme Court of Canada decision in Pecore. Yes, this applies to jointly-owned property too.

What Does That Mean?

Well, you, as the child who receives the gift, have the burden to prove that there was a real gift at the time the property was transferred.

Mom has passed. She can no longer give evidence to support the gift to you.

What evidence is relevant to determine the mother’s intention at the time the transfer was made? [See Pecore, para. 56]

What can you do if Carlos demands you sell the house to share the proceeds? You have to get legal advice.

You hope that the lawyer who did the transfer of the home has notes. This lawyer may have proof a gift was made.

Questions to Ask

Did the real estate lawyer know about Pecore?

Did the lawyer prepare a gift agreement or deed of gift to prove mom’s intention to make a free gift?

Was the gift accepted without conditions?

Did mom receive independent legal advice or separate tax advice?

Was she pressured into making the gift to you?

Lawyers who challenge gifts will ask if mom had a separate lawyer and if she was capable of making appropriate decisions. Is the gift valid if there is evidence that pressure was put on mom by you?

The problem is that you did nothing wrong. You wonder why you need to hire a lawyer to protect yourself to keep the gift.

Because where people smell smoke, there could be fire.

Estate law is all I do. Need a consultation? Contact me.