When does a gift take effect? Is it enough to tell a friend or relative that you give them your car or your shares in a company, or are further steps required? The British Columbia Court of Appeal recently addressed these questions in Ratner v. L.H. Ratner Construction Ltd., 2010 BCCA 593.
The facts in Ratner were that the mother, Mrs. Harriett Ratner, and her adult children owned shares in a family business, which owned properties in the Vancouver area. One child, David Ratner, had managed the family business for a number of years, but then decided to relocate to the United States. For tax reasons, Mr. Ratner transferred his shares to his mother for a nominal amount in 1996. The transfer of shares was approved by the directors, and recorded in the share register.
The shares remained in Mrs. Ratner’s name until 2002, when Mrs. Ratner and the other children exchanged their shares for shares of another class. In 2004, Mr. Ratner confirmed in an email to one of his sisters that he had gifted his shares to their mother.
In 2005, Mr. Ratner had a document prepared which purported to transfer the now-converted shares to him. He brought the document to dinner with his mother and a family friend, and had his mother sign it. She was 85 years old at the time.
Mr. Ratner then forwarded the signed document to the company lawyer with instructions to take the necessary steps to effect the transfer. However, before those steps could be taken, Mrs. Ratner obtained legal advice, and executed a further document, purporting to “cancel and repudiate the gift allegedly made” by her to her son. That document was also forwarded to the company lawyer, and no steps were taken to transfer the shares into Mr. Ratner’s name.
Mr. Ratner argued both that his transfer of the shares to his mother in 1996 was conditional, and that the 2005 document effected the transfer back to him. The Court of Appeal confirmed the finding of the trial judge that the gift from Mr. Ratner to his mother in 1996 was not conditional, but was an “absolute gift”. This meant that once the gift was effected, it belonged wholly to the transferee, and conditions or stipulations sought to be imposed by the transferor were void.
Both courts also found that the alleged gift from Mrs. Ratner to her son was incomplete, and thus, not effective. Specifically, a gift “requires both an intent to give and delivery or transfer of the gift.” Here, Mrs. Ratner did not endorse her share certificates, the directors of the company did not approve the transfer, and the transfer was not recorded in the share register. There was no delivery of the property.
In this case, then, the key points to take away are:
- a gift takes effect once there is both an expressed intention to make a gift, and an actual delivery of the property takes place. Here, while it appeared that an intention to make a gift was expressed by Mrs. Ratner when she signed the first document, there was no transfer of her shares. The gift was therefore not “perfected”.
- while the judgment did not dwell on whether or not Mrs. Ratner actually expressed an intention to gift the shares to her son, facts similar to those in this case could give rise to an argument that the alleged transferor was unduly influenced, such that there was no actual intention to gift the property. This could cause a Court to set aside the alleged gift, even if the shares had already been transferred.
- a gift, if validly made, removes all rights of the transferor to determine how or whether the transferee disposes of it. Specifically, a gift cannot be validly made “for tax purposes only” with the expectation that it still remains the property of the transferor.