Albert was always a bully and Dad loved him best. Judy became a successful doctor and, in part to get away from her dysfunctional family, she moved to Montreal. When Dad died, Judy was happy to see that her father left his $1,000,000.00 estate equally to both his children. But, Albert had other ideas.
Albert went to court and claimed that 20 years ago he bought a cottage which was now in their father’s name. That cottage, now worth 400,000.00, was transferred to Dad 20 years ago because Albert was being investigated by the Canada Revenue Agency for failing to pay taxes for five years. Albert feared that the Canada Revenue Agency would take the cottage away so he transferred the property to his father for $50,000.00 except Dad never paid Albert a dime. Albert claimed that his father had held the cottage in a resulting trust for him and it now had to be transferred back to Albert. With the evidence presented there could be no doubt that Albert paid for the cottage, maintained the property and that the father participated in the scheme to protect the asset from the Canada Revenue Agency.
In our fictional scenario Albert could argue that in Ontario there is a legal presumption that people make bargains and not gifts. Accordingly, if Albert paid for everything the court should presume that he has a beneficial interest in the cottage. This is the basis of his resulting trust1 claim.
Judy might argue that even if Albert’s story was true he still does not deserve to get the cottage when the whole thing was based on a scheme by Albert to cheat Revenue Canada. As Professor Waters stated in his text Waters’ law of Trusts in Canada, “The basic principle is that a person may not have the assistance of equity if the person does not come with clean hands”.2 Arguably, if Albert tried to cheat on his taxes he did not have clean hands and should not benefit from the equitable remedy of a resulting trust. How could it be fair for Albert to have it both ways? To the Canada Revenue Agency Albert said the cottage belonged to Dad and now to Judy he is saying it belonged to him. Given his intention to cheat Canada Revenue Agency does Albert deserve the benefit of an equitable remedy?
In Holland v Holland3 Justice Reilly of the Ontario Superior Court of Justice faced a similar question. A husband transferred a cottage into his wife’s name in exchange for $15,000.00. No money changed hands and the whole thing was a plan to avoid having an asset that would be seized for unpaid taxes. When the couple split up the husband claimed to have a beneficial interest in the cottage. This is an excerpt of the judge’s decision “…a declaration of resulting trust is an equitable remedy. In order to obtain such remedy, the applicant must approach the court with clean hands. In this case, Mr. Holland did not do so. ….It is for Mr. Holland to persuade the court that he is entitled to an equitable remedy and I conclude he has failed to do so.”
Would this reasoning in a family law dispute apply to an estate litigation matter? Maybe. Having dealt with these types of cases I can only repeat that these are very complicated matters and some courts have taken the view that despite the improper intention, if no one was in fact defrauded (for example, if it turned out that Albert never really owed Canada Revenue any money) then he might get the cottage back.
- There is a difference between a resulting trust and a constructive trust. A constructive trust has nothing to do with the intention of the parties. It is a flexible tool used by the courts to redirect funds or property which has been wrongly taken. It is an equitable remedy used by the courts to address an unjust enrichment. Waters, Law of Trusts in Canada, 2nd ed. (Toronto: Carswell, 1984) at p. Defines a resulting trust as an equitable trust that arises whenever one party buys property and has it gratuitously conveyed to another or into the joint names of himself and another.” ↵
- See Waters’ Law of Trusts in Canada, 3rd Ed. 9 — Revocation: Setting the Trust Aside
9.II — Setting the Trust Aside B. Fraud by Settlor. ↵
- Holland v. Holland 2007 CarswellOnt 7195, (2008) W.D.F.L. 49, 49 R.F.L. (6th) 97, 161 A.C.W.S. (3d) 767. Justice Reilly’s decision considered a number of cases involving a transfer of property where the intent was to defeat creditors. Most persuasive was His Honour’s quote of Lord Denning in Tinker v. Tinker, (1970), 1 All E.R. 540 at 542:
“… I am quite clear that the husband cannot have it both ways. So he is on the horns of a dilemma. He cannot say that the house is his own and, at one and the same time say that it is his wife’s. As against his wife, he wants to say that it belongs to him. As against his creditors, that it belongs to her. That simply will not do. Either it was conveyed to her for her own use absolutely; or it was conveyed to her as trustee for her husband. It must be one or the other. The presumption is that it was conveyed to her for her own use; and he does not rebut that presumption by saying that he only did it to defeat his creditors. I think that it belongs to her.” ↵