On July 26, 2011, the Ontario Court of Appeal released reasons in McNamee v. McNamee, [2011 ONCA 533] given jointly by Blair, J.A. and Rouleau, J.A., which overturned the lower court decision of Tranmer, J.
The case involved a claim under Ontario's Family Law Act by a wife for a share of property of her husband, Mr. McNamee, comprising 500 common shares of a family business. The relevant shares had been transferred to Mr. McNamee by his father as part of an estate freeze undertaken by his father. The primary issue dealt with by the lower court was whether the transfer of the shares to the husband was a “gift” from his father, in which case, as a gift received after marriage, the value of the shares would be excluded from Mr. McNamee’s net family property.
The Court of Appeal concluded that, contrary to the finding of Tranmer, J. at the Superior Court of Justice, the shares were indeed a “gift” to Mr. McNamee. In addressing the meaning of “gift” for this purpose, the Court removed much of the confusion raised by the lower court decision and clarified three points regarding the elements of a “gift”.
First, the Court noted that the requirement that a gift be the result of a donative intent does not prevent a commercial motive. The intention of the donor need not be “inspired by affection, respect, charity or like impulses”; rather, the Court confirmed that “a transfer of property by way of gift may equally be motivated by commercial purposes provided the transfer is gratuitous.”
Second, the Court clarified that in assessing whether a transfer is gratuitous the relevant analysis asks whether the donee provided consideration, not whether the donor received a benefit. Tranmer, J. found that Mr. McNamee’s father had received consideration for the shares by way of the sons’ past and/or continued participation in the family business. The Court of Appeal dismissed this reasoning, stating that the issue is not whether the father received a benefit from donating the shares, but rather whether Mr. McNamee provided consideration for the shares. The Court found that he did not, noting that the lack of bargaining over the transfer of the shares precluded the existence of consideration.
The third issue addressed by the Court in relation to the meaning of “gift” was the requirement that a donee accept the gift. On this point, the Superior Court of Justice had found that because Mr. McNamee had been unaware of various conditions attached to the shares, he had not accepted the shares in a manner which validated them as a gift. The Court of Appeal rejected this analysis and clarified that while acceptance of a gift requires a general understanding of the transaction – it did not, on the facts of the case, require Mr. McNamee to understand the precise terms and conditions attached to the gift. The Court found that Mr. McNamee understood the essential nature of the transaction and had a desire to assume title, which demonstrated the requisite acceptance of the gift.
In obiter, the Court of Appeal also pointed out that if the transfer was not a valid gift, it would not have been a valid transfer of any sort and the shares would have remained in the hands of the father, with the result that it would not have assisted the wife in her claim to be entitled to part of the value of the shares.
The decision is important beyond the family law context. The lower court’s comments on the meaning of “gift” caused substantial concern as to the validity of gifts made in the estate planning context, and could have led to income tax issues as well. With its well-reasoned judgment, the Court of Appeal has allowed estate planning practitioners to stop holding their collective breaths, secure in the knowledge that a gift of growth shares made on a freeze, whether to a trust or to a person, is just that – a gift.