Assets passed from parent to child are gifts
Posted: 20th June 2019
Where money or other assets pass from a parent to a child, the law presumes that they are gifts, unless it can be proved otherwise.
That rule had a central part to play in an insolvency case concerning properties which were bought in the name of a woman whose entrepreneur father was subsequently declared bankrupt.
The businessman’s trustees in bankruptcy argued that he was the sole beneficial owner of the three properties, which were purchased and registered in his daughter’s name some years prior to his bankruptcy.
It was alternatively submitted that his contributions to the acquisition of the properties were transactions that defrauded creditors, within the meaning of Section 423 of the Insolvency Act 1986.
In rejecting those arguments, however, the High Court noted that the contributions that were made by the businessman personally, as opposed to those made jointly with his wife, were relatively small. Both parents were solvent at the time of the purchases and their daughter, who was then either an undergraduate or on a starter salary, was still financially dependent on them. It was inherently unlikely that the businessman would have wished his daughter to hold the properties on trust for him and such an arrangement would in any event have made no financial sense.
The daughter took responsibility for paying mortgage instalments and had received rent from one of the properties. In all three cases there was either direct evidence that the parents had made their contributions with donative intent, or the presumption applied that they were gifts advanced in order to provide for their daughter. In also rejecting the trustees’ alternative case, the Court could find no evidence that the businessman had made his contributions for the purpose of putting funds beyond the reach of his creditors or otherwise prejudicing their position.