Financial Abuse; Lifetime Property transfers by Parents
Most adult children provide love, care and support to their parents as they age. But a very small minority will seize an opportunity to financially abuse a parent. The transfer of all or part of a parent’s interest in a property during their lifetime to an adult child is a hugely important issue as for many older people their property is their most significant asset.
An adult child may feel a sense of entitlement to a parent’s assets; so called ‘inheritance impatience’ or say that they are protecting a parent’s assets from being spent on care home fees. This is a worry that older people often share and it means that the issue isn’t always clear cut. When does protecting assets for someone slide into financial abuse? When is a gift not a gift?
For me, the answer is an elephant; difficult to describe but you know what it is when you see it.
A review for Help the Aged in 2008 found that 70% of financial abuse is perpetrated by family members and that 60% to 80% takes place in the home, with only 15% to 20% in residential care.
The startling statistic from the 2008 study was that 50% of financial abuse of the elderly in the UK is perpetrated by adult children against parents.
One of the real difficulties in tackling cases of financial abuse of a parent by a child is that the abuse tends to start out with legitimate transactions and escalate over time. There may be apparent consent by the parent, for example signed documents or evidence of gifts, but they may not be what they seem as coercion or undue influence may have been involved.
There can be a misapprehension that if a victim of financial abuse has mental capacity that “it’s their choice” and nothing can be done. The circumstances of each case must be looked at carefully as it may be possible to prove either actual or presumed undue influence in relation to either a one off transaction, or a series of transactions.
In England and Wales, property is owned both legally and beneficially. You can be the legal owner of a property, i.e. your name is registered on the title deeds with the Land Registry, but not actually be entitled to the proceeds of sale of that property. You are holding a property ‘on trust’ for someone else.
An example: I have just won a case where my client, ‘Alan’ wanted to buy a house but was too old to take out a mortgage. He did a deal with a younger friend that he, ‘Bob’, would buy a house on his behalf. All the money to buy the property and pay the mortgage would be provided by Alan, but Bob was named as the legal owner and took out a mortgage in his own name. All went well until the house increased in value significantly after a few years and the two fell out, at which point Bob claimed that Alan was simply a tenant and had no rights or interest in the property at all. Court proceedings followed and a 5 day trial in London led to a declaration by a judge that Bob held the property on trust for Alan’s benefit. The property must be transferred to Alan (who will have to raise the funds to pay off the mortgage) and he will then own the property legally and beneficially.
Or, you can have a beneficial interest in a property but not be the legal owner.
An example: I am currently fighting a case for a client ‘Anna’ who owned a property jointly with her husband ‘Bill’ and son ‘Charles’. Following the sudden death of one of his sisters, Charles persuaded his parents to transfer the property into his sole name on the basis that he would let them live there and would care for them. Bill died in 2015 and then sadly, relations soured between Charles and Anna. Anna, who is 75 years old, feels that she and her husband transferred the property to their son at a time when they were deeply traumatised following their bereavement. She says the transfer was as a result of Charles’ undue influence. She wants her share back but Charles says the house is his and she must move out. If she succeeds, then even though the property is in Charles’ name legally, the Court can order that part of the property does belong to Anna.
The legal doctrine of “undue influence” can be used to set aside lifetime gifts.
In law the underlying principle is that everyone has the right to exercise his or her own free will.
In the case of Daniel v Drew in 2005 the judge said:-
“The donor may be led but she must not be driven and her will must be the offspring of her own volition, not a record of someone else’s.”
A finding of undue influence does not depend on proving that the victim made no decision of his or her own – or that their will and intention was completely overborne. The leading case in this area of law, Royal Bank of Scotland Plc v Etridge (No 2) in 2001 makes it clear that it’s necessary for the court to investigate how the intention to enter into the transaction was secured; if it was by unacceptable means then the law will not permit the transaction to stand.
So, someone may understand fully the implications of a proposed transaction – but still be acting under the undue influence of another. Obtaining outside advice whether from a solicitor or another professional does not necessarily show that the transaction was free from the exercise of undue influence.
Also, deliberate wrongdoing on the part of the person receiving the gift does not have to be proved, although it is often obvious.
What can amount to influence which is ‘undue’? There are two main forms of conduct that are unacceptable:
- Acts of improper pressure or coercion such as unlawful threats, for example “excessive pressure, emotional blackmail or bullying”.
- A failure to perform an equitable duty; what this means is usually where A trusts B and B takes unfair advantage of A.
Lawyers often refer to two different sorts of undue influence; actual undue influence and presumed undue influence. Basically they are two different ways of proving the same thing.
Actual undue influence is where there is overt wrongdoing. This is where the conduct “twists the mind of the donor”. If a daughter simply persuades her mother to enter into a transaction that is not undue influence. The question is whether the mother’s free will has been overborne by coercion, threats or overt acts of improper pressure. The ‘recipe’ for actual undue influence would look like this:-
- B had the capacity to influence A.
- B exercised that influence.
- The influence which was exercised was undue.
- The exercise of the influence brought about the transaction.
The vulnerability of one party and the forcefulness of the personality of the other are relevant but it’s not necessary to prove a pre-existing relationship between the parties or that the transaction was a bad deal for the person making the gift.
More common, especially in family cases are examples of presumed undue influence; in these cases it’s often more a matter of what has not been done, e.g. ensuring that independent advice is available to the donor. The elderly, especially those who are physically dependent on relatives, friends or professionals are likely to be more susceptible than others to being victims of undue influence and in particular to be in relationships that may give rise to a presumption of undue influence.
The categories of relationship where undue influence can be presumed include:
- Doctor – patient,
- Parent – child (but not child-parent; see the case of Paull v Paull below),
- Trustee – beneficiary and
- Solicitor – client.
It cannot be presumed in relationship between a husband and wife, or civil partners.
The ‘recipe’ for presumed undue influence is:-
- That the victim placed trust and confidence in the other party, or that the other party acquired ascendancy over the complainant. In the case of certain categories of relationship this ingredient may itself be presumed (see above) and
- The transaction is not readily explicable by the relationship between the parties and calls for an explanation.
If those two ingredients are proved then the defendant must argue against (or rebut) the presumption of undue influence.
For a court to decide whether a transaction ‘calls for an explanation’, the context of the gift must be considered and its general nature; if there’s a satisfactory explanation then the presumption of undue influence will not arise. The court will take into account:
- the nature and size of the gift or transaction, including its proportionality in relation to the donor’s assets and
- the extent to which the victim’s future needs are capable of being met out of his or her remaining assets. If the gift is out of all proportion to the kindness or services in question, the court will be suspicious.
In cases involving presumed undue influence, once the two ingredients have been satisfied, the defendant then has to prove that the victim was in fact free of his or her influence when they entered into the transaction.
In the case of Thompson v Foy in 2010 (a case involving a mother and daughter) the judge explained:-
“The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case”.
Again, the issue is not whether or not the donor understood the transaction but whether they lacked independence.
An interesting case where the ingredients for a presumption of undue influence were met but it was held that the transaction should not be set aside can be found in the case of De Wind v Wedge (2008). In that case D and W were siblings. Their mother M had given W, her son, power of attorney so that he could sell her property. The sale went ahead and the solicitor paid the proceeds of sale to W having received instructions to do so from M. M later died intestate and D (W’s sister) asked W about what had happened with the proceeds of sale of the property.
D got no response and brought court proceedings to recover the money. W argued that M had given him the proceeds of sale having discovered that he had lent D a substantial sum of money that hadn’t been repaid and that D had borrowed a further sum of money from an aunt. W told the court that M was annoyed and upset to hear that and decided to redress the balance by giving the proceeds of sale to him. D argued that any gift should be set aside on the grounds of presumed undue influence arising from the relationship of trust and confidence between M and W as her attorney. W argued that M had the benefit of advice from her solicitor and that in any event no undue influence had been involved.
The judge found that there was a relationship of trust and confidence and that the transfer of almost all of her property to her son by M did call for an explanation. It was found that M had not received independent and adequate legal advice – but it was also found that M had a strong personality and was well able to understand the effect of what she was doing and her reasons for doing it. There was evidence that the idea of the gift had come from M and there was a motive or explanation or it. D’s infliction of her own financial difficulties on her entire family had caused a sense of bitterness and resentment amongst many of them. M regarded the financial losses suffered by W as justifying the gift to him of the proceeds of the sale of the property and D failed to establish that undue influence on W’s part was the cause of the gift.
Obtaining independent legal advice from a solicitor is not conclusive – it might establish that the donor knew and understood what he was doing but it doesn’t prove that they were necessarily free of the defendant’s influence. Very often solicitors will only see a snapshot of a relationship and will not know all of the circumstances surrounding the transaction.
Two cases from 2018, both where legal advice was taken but with different outcomes, illustrate this point:
In Brindley v Brindley a dispute arose between two brothers after the death of their mother, and concerned the validity of a significant lifetime transfer by her of a property to one of them.
The mother had moved out of her own home to live with son Alan, and later moved to live with her other son Gordon. Soon after, it was decided she would move back to her own home with Gordon. She decided to transfer her home into joint names with Gordon and he instructed a conveyancing solicitor on her behalf, specifying a joint tenancy. If a property is held by two people as joint tenants, on the death of the first of them, their share passes automatically to the survivor. This change in ownership happened not long after the mother had made a Will dividing her whole estate between Alan and Gordon equally.
As the house had been put into joint names, the mother’s share passed automatically to Gordon on her death and did not form part of her estate, so he became the sole owner of the property.
The judge found that a presumption of undue influence arose in respect of the transfer, and Gordon had failed to be open and honest with his mother about the consequences of it. But even so, the presumption was rebutted and the transaction was valid: the conveyancing solicitor was found to be both independent and competent. He had met with the mother and explained to her the different ways that property can be owned. It was found that she had understood the advice and still decided to proceed. This does seem rather an odd decision, given the finding of undue influence and the fact that the mother was living with Gordon at the time of the transfer.
This decision emphasises firstly, that it’s really difficult to predict the outcome of litigation and secondly, that it is not the behaviour of the person receiving the gift that is as crucial as the donor’s state of knowledge and freedom of thought at the time of the transaction.
On the other hand, in the case of Paull v Paull independent legal advice was not enough to ensure that a transfer of property was valid. Neville, who was in his late 60s in 2010 transferred his home to his son Bradley. Neville continued to occupy the property following the transfer and there was no reasonable explanation for the transaction.
Some years later, Neville challenged the transfer on the basis of presumed undue influence. The claim by a father against his son does not automatically give rise to a presumption of relationship of trust and confidence. So Neville had to prove that he had placed trust and confidence in Bradley.
The Judge found that Neville had been vulnerable in 2010, when the property was transferred and that Bradley had significant control of Neville’s financial affairs. No reasonable explanation was put forward by Bradley. It helped Neville’s case that his son was not a convincing witness and that as a result of the transfer, he was deprived of his home and savings.
Of particular interest is that the conveyancing solicitor who acted in the transfer did give detailed, full advice to Neville regarding the consequences of the transfer. The solicitor attempted to dissuade Neville, who had been pushing forward the idea of the transfer.
The Judge felt that the written advice from the solicitor was “very much a lawyer’s document”. There was no “stark” advice that Neville might lose his home. So Neville’s claim was successful and the transfer was set aside.
That was a good decision from Neville’s point of view but there will be other cases where it may be less easy to prove that a parent placed trust and confidence in an adult child, especially years after the event when the parent’s memory may have faded (or after their death when a lifetime transaction is being challenged on behalf of their estate). Often in family cases very little is put in writing and it’s a case of ‘he said, she said’. The person bringing the claim is very much at a disadvantage in this situation. Why can’t undue influence be presumed where it appears that an adult child has financially abused a parent? The categories of relationship where undue influence can be presumed all make sense on the basis that there is an imbalance of power built into the relationship. They assume that there is no such imbalance between a child and a parent. But of course there is – and that imbalance only increases as a parent ages and becomes more reliant on their child.
When a parent transfers their main capital asset, or a significant proportion of it, to an adult child during their lifetime questions are bound to be raised. What is clear from the case law is that the courts will do their best to protect victims of financial abuse and where the evidence permits, will make a finding of actual or presumed undue influence.
Every case is different and the Court will look at all the relevant circumstances before making a decision.
I suspect that we will see many more cases in the future as we have a growing elderly population, living longer, in property that has often significantly increased in value. These individuals are vulnerable to financial abuse and we need to be aware of (and prevent where we can) the insidious and unpleasant actions of a minority of adult children.