Can a parent ever revoke gift of corporate stock given to a child? The short answer is maybe.
A gift of stock from parent to child is presumed to be a gift under New Jersey law. For the parent to revoke the presumption of a gift requires the parent to meet New Jersey’s highest civil burden of proof under the ‘clear and convincing’ evidence standard. In these circumstances reliable evidence is limited to statements made antecedent to, contemporaneous with, or immediately following the transaction. In other words, the parent’s intent in giving the stock can be challenged only with statements made before, simultaneously or immediately following the transfer.
What is a gift under New Jersey law?
“A gift is a transfer without consideration . . . .” Hill v. Warner, Berman & Spitz, P.A., 197 N.J. Super. 152, 164 (App. Div. 1984). There are three elements to establish 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.” Id. (emphasis added). Second, there must be donative intent; that is, “the donor must possess the intent to give.” Id. (emphasis added). Third, there must be acceptance. Id. New Jersey courts also have 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 (1967); accord Sipko v. Koger, Inc., 214 N.J. 364, 376 (2013); Farris v. Farris Engineering Corp., 7 N.J. 487, 500–501 (1951).
Adults are deemed competent to make gifts during their lifetime.
Generally, an adult is presumed to be competent to make an inter vivos gift (made during one’s lifetime). See Conners v. Murphy, 100 N.J. Eq. 280, 282 (E. & A. 1926); Pascale v. Pascale, 113 N.J. 20, 29 (1988). When a gift “is absolute and made voluntarily with a full understanding of its effect [it] cannot be revoked by the donor, either by his act alone or with the aid of a judicial tribunal.” Hill, 197 N.J. Super. at 164.
New Jersey law presumes stock transfers from parent to child to be a gift.
New Jersey courts presume that the transfer of stock from a parent to a child is a gift. Bankers’ Trust Co. v. Bank of Rockville Ctr. Trust. Co., 114 N.J. Eq. 391, 399 (E. & A. 1933). Absent proof that leaves no doubt as to the parties’ intent, a transfer of stock from a parent to a child is presumed to be a gift. Id. at 399. In Bhagat v. Bhagat, 217 N.J. 22, 34 (2014)(the New Jersey Supreme Court stated:
Generally, the recipient must show by “clear, cogent and persuasive” evidence that the donor intended to make a gift. When, however, the transfer is from a parent to a child, the initial burden of proof on the party claiming a gift is slight. In such cases a presumption arises that the transfer is a gift. . . . The rationale for the presumption is that a child is considered a natural object of the bounty of the donor.
217 N.J. at 41-42 (internal citations omitted)(emphasis added).
Evidence required to rebut presumption of stock gift by parent to child.
In attempting to rebut the presumption that a prior transfer of stock between parent and child constitutes a gift, the parent must rely on evidence that is considered antecedent to, contemporaneous with, or immediately following the transfer.” Id. at 47.
In Bhagat, the New Jersey Supreme Court agreed with the lower courts evidentiary rulings declaring inadmissible the father’s proffer of statements made approximately 13 years after he transferred company stock to his son. “Those statements are neither antecedent to, contemporaneous with, or immediately following the transaction and thus fail to provide reliable evidence of the intent of the stock transfers.” Id.
Our firm is presently handling a case in the Somerset County Chancery Court involving a parent’s attempt to revoke shares in a closely held company that he gave to his children dating back more than 28 years ago. Rochat v. Rochat, Docket No.: C-12048-12.