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Gifts prior to death

On January 30th 2014, the New Jersey Supreme Court explained the law on gifts between father and son in Bhagat v. Bhagat 217 N.J. 22 (2014)

The court remanded the case to the trial court for proceedings consistent with the Supreme Court decision clarifying the standard to apply when determining whether a transfer of property between family members is a gift. This case involved a father’s 1989 transfer of stock in a closely held corporation to the defendant, his son. The son claimed that the transfer of stock was a gift to him from the father. The father denied that the transfer was a gift, but was done for financing purposes and was never intended to be final.

The Supreme Court in Bhagat held in an opinion written by Judge Cuff:

“There are three elements of a valid and irrevocable gift. First, there must be actual or constructive delivery; that is, the donor must perform some act constituting the actual or symbolic delivery of the subject matter of the gift. Pascale v. Pascale, 113 N.J. 20, 29 (1988). Second, there must be donative intent; that is, the donor must possess the intent to give. Ibid. Third, there must be acceptance. Ibid. We have also recognized that the donor must absolutely and irrevocably relinquish ownership and dominion over the subject matter of the gift, at least to the extent practicable or possible, considering the nature of the articles to be given. In re Dodge, 50 N.J. 192, 216 (1967); accord Sipko v. Koger, Inc., 214 N.J. 364, 376 (2013); Farris v. Farris Eng g Corp., 7 N.J. 487, 500-01 (1951). Actual delivery of the gifted property is necessary except where there can be no actual delivery or where the situation is incompatible with the performance of such ceremony. Foster v. Reiss, 18 N.J. 41, 50 (1955) (quoting Cook v. Lum, 55 N.J.L. 373, 374 (Sup. Ct. 1893)). A gift of stock is such a situation because the ownership of stock is now often recorded simply in book form by the issuer or a broker. See N.J.S.A. 12A:8-301b. Therefore, [i]n the absence of express provisions to the contrary, stock may be transferred by delivery of a separate written transfer, without delivery of any certificate where it is not in possession of the transferee. Hill v. Warner, Berman & Spitz, P.A., 197 N.J. Super. 152, 162 (App. Div. 1984). In other words, the delivery of the stock certificate may be constructive, and the failure to record the transfer on the corporate books does not defeat the gift so long as the transfer is accompanied by words that express donative intent and the donor has divested himself completely of the property. Id. at 162-63. The burden of proving an inter vivos gift is on the party who asserts the claim. Sadofski v. Williams, 60 N.J. 385, 395 n.3 (1972). Generally, the recipient must show by clear, cogent and persuasive evidence that the donor intended to make a gift. Farris, supra, 7 N.J. at 501. When, however, the transfer is from a parent to a child, the initial burden of proof on the party claiming a gift is slight. Metro. Life Ins. Co. v. Woolf, 136 N.J. Eq. 588, 592 (Ch. 1945), aff d, 138 N.J. Eq. 450 (E. & A. 1946). In such cases a presumption arises that the transfer is a gift. Peppler v. Roffe, 122 N.J. Eq. 510, 515 (E. & A. 1937); First Nat l Bank v. Keller, 122 N.J. Eq. 481, 483 (E. & A. 1937); Bankers Trust Co. v. Bank of Rockville Ctr. Trust Co., 114 N.J. Eq. 391 (E. & A. 1933); Prisco v. Prisco, 90 N.J. Eq. 289, 289 (E. & A. 1919); Herbert v. Alvord, 75 N.J. Eq. 428, 429 (Ch. 1909); Betts v. Francis, 30 N.J.L. 152, 155 (Sup. Ct. 1862). The presumption does not apply if the parent is a dependent of the child. Peppler, supra, 122 N.J. Eq. at 515. See also Weisberg v. Koprowski, 17 N.J. 362, 372-73 (1955). The rationale for the presumption is that a child is considered a natural object of the bounty of the donor. Weisberg, supra, 17 N.J. at 373. See Restatement (Third) of Trusts 9(2) (2001) (noting that resulting trust does not arise when transfer of property is made by one person but payment is made by another when recipient is spouse, dependent, or other natural object of person making payment).

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