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Estate Law, Fraudulent Conveyance, Resulting Trust, Unjust Enrichment

BC Mom Who Transferred Property to Kids to Avoid Creditors Not Allowed to Reclaim It

Property transfers between parent and adult child are quite common. A parent may transfer property to an adult child for estate planning purposes or simply because a parent wants to make a gift to their child. Transfers for such purposes are not objectionable—though they can create unexpected problems. What is objectionable is transferring property to avoid creditors. A BC mother recently found out the hard way that a person who transfers land to avoid creditors may not reclaim it.

Disputed BC property transfer

The property in dispute in Pattinson v. MacDonald, 2021 BCSC 652 was a 160-acre farm near Cranbrook, BC (the “Property”). On March 14, 1986, Ms. Pattinson executed and transferred her fee simple interest in the Property to her children, Quentin and Julee. In 2018, more than 30 years later, Ms. Pattinson demanded that her children give the Property back. Quentin and Julee refused. Ms. Pattinson sued, asking the Court to order that her children held the Property in trust for her. She also claimed that her children were unjustly enriched as a result of her upkeep of the Property since 1986.

Fraudulent conveyance alleged

Quentin and Julee said they knew of the transfer in 1986 when it occurred. They did not ask for the Property to be transferred into their names. They were not asked to hold the Property in trust for their mother. There was no trust deed or any other document to evidence a trust. Instead, Quentin and Julee said that the Property was transferred to them for two reasons. First, the children said their grandmother Nellie gave Ms. Pattinson three gold wafers in exchange for Ms. Pattinson transferring the Property to them. The children said Nellie did this because she wanted the Property to stay in the family and she wanted them to have an inheritance. The second reason for the transfer, the children said, was to put the Property out of the reach of Ms. Pattinson’s creditors.

Was the Property held in trust by the children?

When a property transfer is challenged, the question of whether consideration was paid is fundamental. If no consideration was paid in exchange for the transfer, the presumption of resulting trust arises. This puts the onus on the transferee to demonstrate that a gift was intended. Ms. Pattinson denied that there was consideration for the transfer, gold wafers or otherwise. Nellie had since died. There were no documents referring to consideration being paid. Justice Gropper held that the children failed to meet the onus required of proving that there was consideration paid for the transfer.

Was the Property transferred to avoid creditors?

Even where no consideration is paid for the transfer, a party who transfers land to avoid creditors may not reclaim it. The facts clearly supported that Ms. Pattinson transferred the Property in 1986 to avoid creditors:

  • RBC had brought an action against Ms. Pattison seeking payment of debt that same year. Not owning the Property was advantageous to Ms. Pattison in the action against her by RBC.
  • The 1986 transfer documents named her children by their middle names, rather than by first names. Ms. Pattison provided no explanation for that. Justice Gropper found it likely that the children were named by their middle names on the transfer form to avoid creditors knowing that Ms. Pattison transferred the Property to her children.
  • Bankruptcy proceedings in 1987 did not refer to Ms. Pattison as owning the Property, as that would have interfered with her ability to declare bankruptcy and avoid creditors on that basis.
  • Ms. Pattison said she transferred the Property in trust to her children to avoid “frivolous claims” by possible creditors of her new business venture, as well as claims of her ex-husband and her common-law husband’s ex-wife.

Having succeeded in protecting her property from creditors, Ms. Pattinson must have intended to transfer all of her interest, including her beneficial interest in the Property to her children. She could not claim the Property was hers 35 years later. Ms. Pattison also failed in her unjust enrichment claim. Any claim based on contributions or improvements she may have made to the Property were outweighed by the fact that she lived on the Property rent-free since 2003. The 33-year delay was also fatal to her unjust enrichment claim. Ms. Pattison was ordered to pay litigation costs to her children.

Bottom line on property transfers to avoid creditors

A person who transfers property to defeat creditors is not entitled to later recover that property.