Normally speaking, where person A purchases property in the name of person B, a trust arises whereby person A holds the property on trust for person B – unless a presumption of advancement is present or if there is evidence to the contrary.
Certain relationships give rise to presumptions of advancement:
- husband to wife; and
- parent to child.
In a transaction if one of these relationships exists, the transaction is taken to be by way of advancement; in other words a gift from the husband to wife or from the parent to child (unless evidence appears to the contrary). Interestingly, the presumption does not apply from a wife to husband due to the traditional and historic view that a husband has a natural obligation to provide for his wife. It also doesn’t apply between de facto spouses.
As an example, if mum provides funds to her son to purchase a house in son’s name, mum is taken to have gifted the funds to her son (due to the presumption of advancement). However, if evidence existed at the time of the transfer that mum did not intend the funds to be gift (e.g. if there was a loan agreement in place) the presumption is rebutted and mum is taken to hold the house on trust for the son, pending repayment of the funds.
The intention of the transferor (being mum in the example) at the time of the transaction is crucial to determine whether or not the transaction is deemed a gift. Continuing on, if things went pear-shaped for the son and he subsequently came into financial strife, mum would struggle to recoup the funds unless she could prove that at the time she provided them it was not intended to be gift and instead was a loan. Without proof of a loan, mum loses out and likely has no chance of ever being paid back from her son.
When providing money or transferring property to another person, be cautious as to documenting your intention – if you fall into a category giving rise to the presumption of advancement you may never be able to undo your transaction.