By Kayleigh Pink, Associate Research Lawyer,
Lam Family Law*

Resulting Trust Analysis: Effect of an Intention to Avoid a Merger under the Planning Act

In Holtby v. Draper, the husband had put a property in his and his wife’s names as joint tenants for the purpose of preventing a merger under the Planning Act with an adjacent property he held in his name alone. The Court of Appeal for Ontario (“ONCA”) found that the wife rebutted the presumption of resulting trust for this property because having different beneficial ownership in the two properties was necessary for the husband to achieve his intended goal under the Planning Act: Holtby v. Draper, 2017 ONCA 932 (CanLII), at paras 68-70.

The impact of the transferring party’s intention to avoid the Planning Act was revisited by the ONCA in it’s February 2024 decision of Falsetto v. Falsetto. Here, the husband wanted to buy a property (“415 Lisgar”) that was adjacent to another property he owned in his sole name. To prevent a merger under the Planning Act, the husband’s solicitor suggested that the husband’s father (the “father”) be added to title. The husband and father accepted this advice but, six days before closing, the bank advised it did not have sufficient time to approve the father under the mortgage. The husband and father agreed the wife would take the father’s place on title instead: Falsetto v. Falsetto, 2024 ONCA 149 (CanLII), at paras 4-6.

The husband and father paid the down payment, land transfer tax, and other closing costs in equal shares. The wife made no financial contribution to the purchase. Title was taken jointly by the husband and wife and they were named as co-mortgagors. The property was subsequently rented out to tenants. All rental income was paid to the husband and father. The husband and father continued to pay for all expenses related to the property. The wife did not make any financial contributions to the property: Falsetto v. Falsetto, ibid, at paras 7-8.

When the husband and wife separated, the father claimed a purchase money resulting trust in 415 Lisgar. The trial judge rejected the father’s claim, concluding that he had intended to gift the wife his interest in the property: Falsetto v. Falsetto, ibid, at paras 10-12.

On appeal, the wife argued that Holtby v. Draper provided a complete response to the father’s application. The ONCA disagreed, finding that Holtby v. Draper does not stand for the proposition that “achieving the Planning Act goal was decisive in determining the transferor’s intention.” Rather, the ONCA found that the court in Holtby v. Draper “simply considered it as one factor “consistent with the presumption of joint ownership [that] in no way refute[d] it””: Falsetto v. Falsetto, ibid, at paras 25-26.

The ONCA considered the father’s intent at the time of the conveyance and whether he intended to retain a beneficial interest in 415 Lisgar, as presumed, or if he had intended to give the wife a gift. The ONCA found that the father’s evidence showed that (1) the end he was trying to achieve was to purchase 415 Lisgar as an investment property; (2) in so doing he wanted to avoid merging the title with the adjacent property; and (3) he thought he could achieve this through having the wife take legal title while he retained the beneficial interest. This evidence was rejected by the trial judge because “the plan could not have worked”. The ONCA held that the trial judge “erred in making the presumed operation of the Planning Act determinative of the question of whether” the father intended to make a gift of the purchase money or retain a beneficial interest in the property. As such, the ONCA allowed the appeal, finding that the father was the beneficial owner of a 50% interest in 415 Lisgar. It made an order vesting title of the wife’s interest in the father: Falsetto v. Falsetto, ibid, at paras 27 & 29-31.

Conclusion

The outcome in Falsetto v. Falsetto means that transferring or putting title in a person’s name for the purpose of avoiding a merger under the Planning Act is no longer determinative (as it appeared to be in Holtby v. Draper), but now simply one factor to consider in the resulting trust analysis. This makes it harder to predict the result in a particular case.

However, this is consistent with another part of the decision in Holtby v. Draper where the ONCA held that “[a] motive to shield property from creditors does not itself rebut the resulting trust presumption”: 2017 ONCA 932 (CanLII), at para 55. Subsequent case law showed that lower courts were applying this principle such that the intention to avoid creditors was a relevant, but not conclusive factor. To read more, check out my previous blog post from November 2023, called “An Update on Resulting Trust Claims in the Context of Creditor-Proofing”.

As a recent example from March 2024, in Skrak v. Skrak, the court followed Holtby v. Draper in stating that “[w]hile evidence of an intention to defeat creditors can be evidence of a gift, it’s not conclusive.” In that case, the husband had transferred title of the matrimonial home to the wife to shield the home from his creditors. Justice Agarwal found that this was insufficient to find the husband intended to gift his interest to the wife: Skrak v. Skrak, 2024 ONSC 1574 (CanLII), at paras 37-39.

So, as with an intention to avoid creditors, an intention to avoid the Planning Act requires a case-by-case evaluation of the evidence to ascertain the gratuitous transferor’s actual intention on the balance of probabilities to determine whether to rebut the presumption of a resulting trust. The intention to avoid creditors or avoid merger does not necessarily entail the intention to make a gift. See Falsetto v. Falsetto, 2024 ONCA 149 (CanLII), at para 18.

*With thanks to Vanessa Lam for her suggestions and edits.