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Bhagat v. Bhagat

A-0136-10T1 (N.J. Super. App. Div. 2011) (Unpublished)

GIFTS — There exists a presumption that a transfer from a parent to a child is a gift.

A father, by executing various documents, conveyed his interest in shares of stock of a family business to his son. He first signed a Declaration of Gift. In that document, the father reserved an option to purchase any or all of the gifted shares within five years. At the time of this transaction, the father lived with his son, and had frequently told family members that he would leave everything he owned to that son. A year later, the father executed a second document to ensure that all shares intended to be transferred in the earlier document were conveyed.

Later, the father sued his son, arguing that the transfer was intended to be temporary and conditional upon the occurrence of certain events (such as the anticipated financing for construction work at a new hotel property), and because those events did not occur, the purported transfer was of no effect. Under that theory, he claimed to have retained his ownership interest. The father also contended that the son should be estopped from claiming that he had gifted the stock to him. In doing so, he referred to a subsequent complaint filed against alleged business partners in which his son verified the complaint and, the complaint asserted that the father owned the stock.

The lower court granted summary judgment to the son, finding that the purported gift was complete and effective, and therefore the son owned the stock. It said that there exists a presumption that a transfer from a parent to a child is a gift, and that the elements of a gift were firmly established by the record. The lower court also rejected conclusionary arguments of judicial estoppel and res judicata, as the referenced subsequent litigation did not adjudicate the father-son stock dispute. Moreover, it was resolved by settlement and not on its merits.

The lower court was also mindful of the son’s lower court certification that he and his father had an ongoing understanding that the son was the beneficial owner of the stock even though the corporate books of the family business still reflected the father’s name. It also took note that the father, once he knew that the financing would not go forward, could simply have exercised his buy back option.

On the father’s appeal, the Appellate Division affirmed, finding that the father did not overcome the presumption that a stock transfer from a parent to a child is a gift. It held that the documents executed by the father and delivered to the son clearly demonstrated the father’s intent to make a gift and showed that delivery had taken place. The language of the documents themselves did not place any conditions on the gift; rather the gift was subject to a buy-back provision and the father could have easily exercised it.

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