There is a common law presumption that a transfer of land grants to the transferee an absolute right and title in the land (“beneficial ownership”). However, there is also a presumption that a “resulting trust” arises when property is held in the name of a party who provided no value for it. For instance, where a parent provides the purchase money for a property held in the name of an adult child or adds the child to title for no consideration, it is presumed that the child is not a beneficial owner and only holds title to the property in trust for the parent. To rebut this presumption, the burden of proof rests on the child to demonstrate on a balance of probabilities that the property was received as an outright gift rather than being held in trust for the parent.
Under Ontario law, real property can be held personally or in trust for someone else. When property is held in trust, the trustee is the legal title holder while the beneficiaries hold an unregistered beneficial interest in the trust property. As there is no mechanism under Ontario’s Land Titles system of land registration to identify trust interests, the Land Register may not provide the full picture to those who are investigating property ownership. Creditors looking to collect on debts are tasked with determining whether a registered owner holds a beneficial interest in a property or is merely holding title in trust. A creditor who does not pay close attention risks pursuing a claim against a debtor who appears to own property only later to discover that the debtor has no real ownership interest in any property. Just because a debtor is shown on title to be a registered owner does not mean that there is property against which to collect on a debt.
In a recent case, the Ontario Superior Court of Justice determined that a trial would be necessary to determine whether a registered owner of property held title in trust, thereby postponing the possible enforcement of a judgment against the registered owner’s recorded interest. A creditor was seeking to enforce a judgment against a property held jointly by the judgment debtor and her mother. The mother, seeking to avoid enforcement against the property, applied to the Court for a declaration that her judgment debtor daughter only held an interest in the property in trust for the mother. The Court ultimately determined that the matter could not be decided on the basis of a paper record as a court application and that a mini trial would be necessary.
Between 2016 and 2017, the mother and her late husband had added the judgment debtor to title of three properties they owned based on “natural love and affection”. The Land Transfer Tax affidavits sworn in respect of the transactions stated: “Transfer from parents to themselves and their daughter for natural love and affection.” In 2023, the creditor obtained judgment against the daughter for nearly $1.8 million. The judgment debtor daughter was found to have made false representations to the creditor in a transaction involving the supply of food products on credit. The daughter had failed to pay for these products and it was determined that a fraud had been committed. The creditor wanted to enforce its judgment against the properties owned (or apparently owned) by the daughter.
There were two issues examined by the Court in its ruling. The first issue was whether the transfer from parents to daughter was a gift, in which case the daughter was a beneficial owner of the properties, or created a resulting trust, in which case the daughter was only holding title in trust for her parents. The Court referred to the seminal Supreme Court of Canada case of Pecore v. Pecore, which held that a transfer of property from a parent to an adult child without consideration leads to the rebuttable presumption of a resulting trust for the benefit of the parent. In this case, the onus was on the judgment creditor to prove that the transfer of title was a gift and did not give rise to a resulting trust (so that the creditor could collect its judgment debt against the property). The Court found that this issue could not be resolved unless a mini trial was held.
The second issue was whether the entry of the daughter’s name in the Land Register as a registered owner in and of itself meant that she had a beneficial interest in the real estate properties (rather than just holding the property in trust for her parents). Here the judgment creditor relied on a case called Bao v. Mok to argue that the Land Titles parcel register is definitive and makes the judgment debtor daughter a beneficial owner. However, the Court found that the circumstances in the Bao v. Mok case were distinguishable. There, land had been transferred to a bona fide purchaser for value without notice that the transferor (the registered owner on title) was not actually the beneficial owner of the property but was holding it in trust for someone else. The bona fide purchaser for value was entitled to rely on the Land Register and didn’t have to investigate behind it to see whether a trust interest was present. The Court found that the situation of a judgment creditor seeking to enforce a judgment against property is different. The Land Titles Act doesn’t protect the creditor in the way that a bona fide purchaser for value without notice is protected. Creditors beware!
Read the decision at: 2024ONSC 6155
