We have elsewhere in our blog articles talked about these issues, but the presumption of undue influence is an important consideration for both Wills and gift-giving. The presumption comes up in cases where the potential for domination inhibits the relationship between the transferor and the transferee. In other words, from the person giving to the one receiving. The presumption states that when transfers are made in these special relationships, which include fiduciary relationships, they will have been presumed to have been induced by undue influence. Where the presumption applies, courts do not require proof of coercion to create a finding of undue influence. In English as an example– when an adult child gets $100,000 from their elderly parent, the starting point is that the adult child took advantage of their parent
We start with the extremely important and famous case of Lack Minerals Limited v International Corona Resources Limited, a decision of the Supreme Court of Canada. In that decision, the Supreme Court of Canada held that a fiduciary relationship exists where:
1. The fiduciary has scope for the exercise of some discretion or power;
2. Where the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiaries legal or practical interest; and
3. Where the beneficiary is peculiarly vulnerable to or at the mercy at the fiduciary holding the discretion or power.
There are some obvious examples of this such as lawyer and client, parent and child, guardian and ward relationships. The court will look at these relationships through the lens of the transferor’s age, illness, cognitive decline and reliance on the transferee.
The idea of presumption of undue influence meshes with the argument that the transferor lacked capacity to make a gift or transfer. Evidence of diminished mental faculties is useful both as a basis to set aside the gift by indicating that the donor lacked the concept and understanding of making a gift and further to trigger the presumption of undue influence. Once the presumption is triggered, the onus shifts to the recipient to prove on a balance of probabilities that the donor made the gift because of his or her full free informed thought.
As an example of the gift between parent to child to assist them in purchasing a home, one could attack that gift saying either a parent did not know what they were doing or lacked the mental capacity to do so or alternatively were at the mercy of the child such as the child withholding the essentials of life unless such a gift was made.
How does one respond to a claim of a presumption of undue influence. There are many ways to do so, but some of the most obvious are the following.
1. Proving no actual influence was used in the transaction.
2. There was no opportunity to even influence the donor.
3. The donor received independent legal advice or had the opportunity to obtain independent advice.
4. The donor was strong-willed enough to resist any undue influence,
5. The donor knew and understood what he or she was doing; and
6. Undue delay in making such a claim leading to in essence acquiescence or confirmation on the part of the donor. (simply put no one complained long after knowing of the gift).
Our law firm has been involved in cases in which gifts in excess of a million dollars have been given to the caregivers of the deceased that he had only known for the last 18 months of his life. There were immediate red flags that that would trigger a presumption of either undue influence or perhaps an attack indicating that the donor lacked the mental capacity to make such a gift. However in that particular instance after an exhaustive review of the information available, the donor clearly was shown to be a strong-willed individual who had all of his financial acumen right to the very end of his life. That gift was not even attacked in the end.