In the recent case of Falsetto v. Falsetto, 2023 ONSC 1351[1], Justice Bell decides on the issue of whether a resulting trust can be established in a situation where property title is placed in a third party’s name, primarily to comply with the Planning Act[2]. This case highlights the importance of documenting intentions when transferring property to third parties in order to achieve certain legal results.
The Respondent, Paula Falsetto, is the ex-spouse of the Applicant's son. In 2011, the Applicant, Luigi Falsetto and his son, Albert Falsetto, planned on purchasing an investment property alongside other properties they owned in the area. A real estate lawyer advised them that Albert must take title jointly with another party to avoid title merging with the neighbouring property under the Planning Act. The bank was unable to approve Luigi in time, so Paula was added to the property's title and mortgage.

Since the purchase, Paula and Albert separated. Luigi applied for a declaration vesting Paula's interest in the property to him – arguing that Paula held title in the property in a resulting trust for his benefit. In making this argument, he relied on the facts that Luigi and Albert paid the down payment and closing costs in equal shares. Paula did not contribute to managing or operating the property, did not contribute to the mortgage and other expenses, and did not receive any income from the property.

The presumption of resulting trust is a rebuttable presumption of law: where a transfer is made for no consideration, the onus is placed on the transferee to demonstrate that a gift was intended. This is because equity presumes bargains, not gifts (Pecore v. Pecore).[3]

Justice Bell was satisfied with the evidence that Luigi, in advancing the funds to Paula, intended a gift to her. This is because when making a gratuitous transfer of property, the person who makes the transfer must have intended to either pass the beneficial interest (a gift) or retain it (a trust). The relevant intention is of the person who advanced the funds at the time of the contribution to the purchase price (Pecore v. Pecore).[4] In this case, the reason for the transfer was to avoid a merger of the property pursuant to the Planning Act.

The Judge referenced Zacher v. Zacher and stated  that a party cannot achieve one result to avoid a legal consequence prescribed by statute, and achieve an opposite result for other purposes.[5] The Judge found that Luigi intended to pass beneficial ownership in the property to Paula in order to avoid a legal consequence under the Planning Act, and no purchase money resulting trust arose in Luigi's favour.

The implications of the decision in Falsetto v. Falsetto extend beyond the specific facts of the case. The decision can be applied to other circumstances in which property was transferred to a third party in order to achieve certain legal results; for example transfers to avoid probate, or to protect property against creditors.

The case serves as a cautionary example of the perils of transferring property to third parties without properly documenting the parties’ intentions at the time of the transfer. A clear documentation of intent not only outlines the donor's intentions but also provides a legal framework that can be referred to in the future. This documentation can include details such as the purpose of the gift, any specific conditions or expectations, the donor's wishes regarding the use and maintenance of the property, and the testamentary treatment of such property on death.  This proactive approach serves as a valuable tool in estate planning, ensuring that the transfer of property aligns with the donor's intentions and minimizes potential disputes and conflicts.

This blog was co-authored by Articling Student, Toni Pascale.

[1] Falsetto v. Falsetto, 2023 ONSC 1351
[2] Planning Act, R.S.O. 1990, c. P.13
[3] Pecore v. Pecore, 2007 SCC 17 at para 24.
[4] Ibid at para 59.
[5] Supra note 1 at para 36.