The rise of lifetime gift litigation

Date: 08 Feb 2023

Silvia Ricciardi

Citywealth interviews experts to dig into lifetime gift litigation. We talk about the reasons behind challenging lifetime gifts and useful advice for UHNW and HNW individuals who want to proceed, as well as time limits to act on it.

Citywealth wants to thank its contributors: Paula Myers, Partner and Director of Legal Services for private clients at Irwin Mitchell, James Lister, Head of Private Wealth Disputes at Stevens & Bolton, Gareth Ledsham, Partner, Trust and Estate Disputes, Russell Cooke and Shu Mei Hoon, Director, Dispute Resolution at Drew & Napier in Singapore.

Different reasons can lead to challenging lifetime gifts. Suspicious circumstances around when a donor has made a lifetime gift can be one of the main factors, but other cases may apply.

Paula Myers, Partner and Director of Legal Services for private clients at Irwin Mitchell, explains several reasons behind challenging lifetime gifts: “Lifetime gifts can be challenged at any time, but they are most often challenged following the death of the donor. Circumstances which may give rise to suspicion include where a gift has been made unexpectedly by the donor before death or an expectant recipient of an asset has been surprisingly deprived due to a lifetime gift of the asset to another.

A lifetime gift can also be challenged due to the donor being subjected to undue influence to make the gift. Undue influence may be ‘actual’ or ‘presumed’. Actual undue influence arises where there are acts of improper pressure or coercion which override a person’s volition to make their own decisions. Presumed undue influence occurs when certain specific relationships exist between the donor and someone influencing the management of the donor’s affairs, and there is also a transaction which calls for an explanation. In reality, the challenge of undue influence is often accompanied by the challenge of capacity as a donor is more susceptible to influence when in cognitive decline.”

James Lister, Head of Private Wealth Disputes at Stevens & Bolton, summarises: “There are various circumstances in which a lifetime gift could be challenged: if there were no intention for the gift to take place at all (this occurs most commonly in the ‘loan vs gift’ litigation after the death of the person alleged to have made the gift); if the gift was not properly made (e.g., where the relevant formalities to make a gift had not been complied with. For instance, a gift of land would usually have to be in writing, whereas a gift of cash could be evidenced just by the fact of a transfer); if the gift was made as a result of some sort of influence over the person making the gift (whether or not by the beneficiary of the gift); if the gift was made at a time when the person alleged to have made the gift lacked the capacity to make the gift, i.e., to understand the nature of the gift and its effect. As a general rule, the larger the value of the gift (by reference to the person’s other assets), the higher the capacity threshold is for that gift. So a multi-millionaire giving away £5,000 would (generally) have to meet a lower capacity threshold than someone giving away most or all of their wealth, where the impact of that gift would likely be much more significant.”

But James also underlines the need to carefully consider the benefits before challenging a lifetime gift: “It’s important to trace the benefit of challenging a gift through before embarking on it – would your client actually benefit from the gift being set aside? If not, why would they want to pursue that challenge, or seek to persuade the executors to do so?”

Gareth Ledsham, Partner, Trust and Estate Disputes, Russell Cooke, points out: “Often these challenges will arise after the donor’s death or after the onset of incapacity – when the donor is not able to speak for themselves. Generally speaking, lifetime gifts may be challenged in various circumstances. It might be alleged that the legal requirements for a gift were not met (e.g., that a gift was not intended but rather a loan was) or it might be argued that the donor did not have the necessary mental capacity to understand they were making a gift, or that they were unduly influenced into making it.”

Paula adds that another reason to challenge lifetime gifts could be when a donor acts to deplete their assets so that potential claimants could not benefit from them: “There may also be instances where a donor wishes to deplete their estate to deprive potential claimants under the Inheritance (Provision for Families and Dependants) Act 1975 (the ‘1975 Act).  An example of this may be where a parent has fallen out with a child and does not wish for the child to receive anything from them when they die, so makes lifetime gifts of their assets to another. For a claim of this kind to be successful, it must be shown that the deceased made a gift or transfer at undervalue within 6 years of death with the intention of defeating a successful claim under the 1975 Act.

Other ways in which a lifetime gift may be challenged include if the gift was a result of fraud or made to resist creditors. Specific Court of Protection Rules also apply to Property and Affairs Attorneys and Court appointed deputies that govern the limits of the lifetime gifts which they can validly make on behalf of their patients.”

Shu Mei Hoon, Director, Dispute Resolution at Drew & Napier in Singapore gives a concrete example analysing Teo Song Kheng v Teo Poh Hoon [2020] case [SGHC 47 at (49)]: “Singapore case authorities on the requirements of a valid inter vivos gift have made it clear that a ‘lack of certainty’ as to the subject matter of the gift would render the purported gift invalid. In the case of Teo Song Kheng, the plaintiff was the co-executor of the estate of his late mother Mdm Seah. He claimed that the disputed items comprising mostly jewellery was given to him by Mdm Seah and that his younger brother (the defendant) took possession of the disputed items without his consent. However, the plaintiff was unable to maintain a consistent position on what exactly had been gifted to him by Mdm Seah. The Court found that the plaintiff’s inconsistency during cross examination as to the items gifted raised questions on the credibility of his testimony as to what was exactly gifted. The Court noted that the parameters of the purported gift made by Mdm Seah were nebulous and there was consequently a lack of certainty as to the subject matter of the gift.”

When it comes to challenging a lifetime gift, time limits should be taken into account in accordance with the kind of challenge.

“The time limit for challenging a lifetime gift depends on the type of challenge that you are to bring,” says Paula. “For this reason, it is important to seek legal advice as soon as a claim is anticipated. Some of the time limits are very short. For instance, if you bring a 1975 Act claim, you must do so within 6 months of the grant of probate and also within 6 years of the date of the lifetime gift that you are challenging. At the other end of the limitation spectrum, a claim for undue influence can be brought as long as the undue influence persists. However, once the donor is no longer under undue influence, the claim must be brought within a reasonable time.”

James Lister dwells upon claims with no particular limitation period: “If the claim is a claim to set aside a gift, there is generally no strict limitation period for this as such a claim is a claim for an equitable remedy. Likewise, there is no limitation period for claims arising out of alleged fraud or where a trustee has taken assets they had to hold for someone else and instead they decided to apply them for their own use. So it is possible that a claim to restore a lifetime gift could be made some considerable time after the gift itself. However, unless there is evidence of fraud, most claims for equitable remedies will not be allowed by the Court if there has been a long delay in bringing the claim for no good reason, or where allowing the claim to proceed would be inequitable or unfair to the innocent recipients of, for example, the person’s estate in the meantime.”

Gareth adds: “There is no specific time limit for challenging a lifetime gift, but there are practical factors to consider, including the longer the matter is left, the more difficult it may be to recover the subject matter of the alleged gift. For example, if the plaintiff challenges a gift of money, the recipient may have spent it or moved it out of the jurisdiction. In addition, there are also defences available to defendants where a claim is brought a long time after the event, especially if the claim brought could have been brought sooner.”

… you should seek legal advice as soon as you consider that you wish to challenge a lifetime gift and gather as much information and evidence as you are able to. A particular note of caution for Personal Representatives of a deceased’s estate to act promptly. Those who do not take active steps to investigate a lifetime gift when a challenge is raised and allow a limitation period to expire may face a claim of devastavit. This means that Personal Representatives may be personally liable to the beneficiaries for any loss to the estate. Paula Myers, Irwin Mitchell

… individuals who intend to challenge a gift should first consider whether there were any vitiating factors such as fraud, undue influence or mistake which constitute grounds for a gift to be set aside. They can also challenge a gift on the basis that there was a lack of certainty of the subject matter of the gift that would render the gift invalid where it is unclear what is being gifted. Shu Mei Hoon, Drew & Napier

… it is always prudent to gather as much information as you can as quickly as possible after you become aware of a gift that you might want to challenge. Reconstructing events several months or years later is much more difficult, and consequently obtaining the best and most contemporaneous evidence you can is essential. Then work out who can or should actually bring the claim. Although you may feel ‘wronged’ by the gift, the claim itself will often belong to the executors or attorneys of the person alleged to have made the gift; so your primary task will be to persuade them to pursue the claim in the first place. If that is not possible, it is sometimes an option for the beneficiary to pursue the claim themselves on behalf of the estate, but this is not commonplace unless there is a reason why the executors/attorneys cannot or will not pursue it themselves. James Lister, Stevens & Bolton

… if a challenge to a lifetime gift is contemplated, the first thing to think about is on what basis the gift is to be challenged: are we saying that a gift was never intended in the first place? Or are we saying that the donor did not understand what they were doing when the gift was made, or that they were unduly influenced into making it? The key issue in both instances is what evidence is available to support the allegation made. As these cases often come to light either after the donor has died or when the donor has lost mental capacity to make their own decisions. Advice at an early stage will be key to success. Gareth Ledsham, Russell Cooke

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