In yesterday’s blog post, I discussed a recent Ontario Superior Court of Justice decision that shows the litigation that can arise between beneficiaries when the deceased dies intestate and uses joint bank accounts as a form of estate planning. Today, I would like to discuss a recent decision from the Ontario Court of Appeal where the deceased made a will, but subsequently deposited some of the bequeathed property into a joint bank account with a right of survivorship to his adult children.
In Foley (Re), 2015 ONCA 382, the deceased was survived by his son Donald and his daughter Dorothy. The deceased made a Will in 1990 where he made a specific bequest of “all Canada Savings Bonds registered in my name only at the time of my death” to Dorothy.
In 1996, the deceased established a joint bank account with a right of survivorship and named Donald and Dorothy as joint tenants of the account. The deceased’s financial advisor testified that he was trying to avoid the costs associated with probate, and the Court of Appeal noted that “he assured [the financial advisor] that his children would know how to divide the assets” in the joint account.
The deceased was the only contributor to the joint account. Unbeknownst to Donald and Dorothy, the deceased deposited the Canada Savings Bonds into the joint account. Upon his death, the Canada Savings Bonds were redeemed and distributed to Dorothy in accordance with the Will.
In addition to challenging three money transfers that the deceased made to Dorothy prior to his death, Donald argued that the deceased intended to gift the contents of the joint bank account equally between his children. In the alternative, Donald argued that the gift of the Canada Savings Bonds adeemed when the bonds were deposited into the joint bank account.
As I noted yesterday, there is a presumption of resulting trust when a parent makes a gratuitous transfer of property into a joint account with an adult child unless the child can rebut the presumption and prove that the parent intended to make a gift. In addition, under the principle of ademption, when a deceased makes a specific bequest but the subject property is not found among the deceased’s assets after death, the gift can fail or “adeem.”
At trial, the Honourable Madam Justice Mullins rejected Donald’s arguments, holding that he had failed to rebut the presumption of a resulting trust. The bonds were endorsed by a teller’s stamp prior to being deposited into the joint bank account. Justice Mullins held that the bonds became negotiable instruments because of the endorsement but the gift did not adeem because the bonds were still in the deceased’s name, as required by the terms of the bequest under the Will. The Court of Appeal upheld the trial judge’s findings and dismissed the appeal.
In yesterday’s post, I noted the importance of ensuring that your intentions are clear when using joint accounts as an estate planning tool. The Foley decision highlights the need to also ensure that joint accounts are used in a manner that is consistent with the rest of your estate plan. When you intend to make a specific bequest to a beneficiary under your will, great care should be taken to ensure that the bequeathed property is not placed in a joint bank account that is meant to pass outside the estate. The failure to do so may lead to confusion about your intentions and potential litigation between the beneficiaries of the estate.
Thank you for reading and have a great weekend.
Umair Abdul Qadir
The use of joint accounts as an estate planning tool continues to gain in popularity. For example, parents may create joint bank accounts with their adult children, with the intention that the children receive the remaining balance in the joint account as a “gift” by right of survivorship upon the parent’s death.
In theory, joint accounts are easy and convenient to set up, and allow you to minimize estate administration tax because the jointly-held assets pass outside the estate. However, in practice, the use of joint accounts may create unintended results.
In Pecore v Pecore, 2007 SCC 17, the Supreme Court of Canada confirmed that there is a presumption of resulting trust when a parent makes a gratuitous transfer of property into a joint account with an adult child. In other words, the transferee will be found to be holding the assets in trust for the benefit of the estate unless he or she can rebut the presumption by proving that the transferor intended to make a gift.
Over the next two days, I will highlight two recent decisions where the use of joint bank accounts by the deceased became a litigated issue between the parties.
In Johnson v Johnson Estate, 2015 ONSC 3765, the deceased was survived by one son (“Wayne”). The deceased’s other son predeceased her, but left a son (“Michael”). The deceased died without a will, and her grandson Michael claimed that he was entitled half of the value of the estate in accordance with the rules of intestacy. However, the deceased’s son Wayne took the position that Michael was not entitled to the monies in the bank accounts and investment accounts that Wayne held jointly with the deceased prior to her death.
Wayne argued that the joint accounts passed to him by right of survivorship, and that there was sufficient evidence to rebut the presumption of a resulting trust. He claimed that the deceased was using the joint accounts as an estate planning tool and wanted the accounts to pass to him without forming part of the estate. Michael maintained that Wayne had not rebutted the presumption.
The Honourable Madam Justice Woollcombe considered the evidence to determine if the presumption had been rebutted on a balance of probabilities. Justice Woollcombe held that there was insufficient evidence to suggest that the deceased intended to make an outright gift of the jointly-held accounts to her son upon her death. The bank documents did not show the deceased’s intention behind opening the joint accounts, and there was no explanation for why the deceased chose not to similarly hold her home in joint ownership with her son. In addition, there were no testamentary documents or tax documents to help assess the deceased’s intention.
In the result, Justice Woollcombe held that the funds in the joint bank accounts were held on a resulting trust for the deceased’s estate and would be distributed in accordance with the rules of intestacy. Wayne and Michael were each entitled to half of the total value of the deceased’s estate.
The Johnson decision is a strong reminder for individuals who are using joint accounts as an estate planning tool to ensure that their intentions are clearly ascertainable. In the absence of clear evidence, a joint account may unintentionally fall into the deceased’s estate. In addition, confusion regarding a deceased’s intentions can lead to protracted litigation between beneficiaries – likely a far greater expense than the potential savings on probate taxes!
Thank you for reading.
Umair Abdul Qadir
Parties to an estate dispute often choose to enter into a settlement at an early stage of the litigation process. Reaching a settlement at a pre-trial conference or at mediation can help avoid the time, legal costs and uncertainty associated with a full-fledged trial of the issues. With the introduction of the new Rule 75.2 to the Rules of Civil Procedure, which comes into effect on January 1, 2016, Ontario’s courts will be better-placed to encourage parties to mediate their disputes before trial. While mediation is already mandatory in Toronto, Ottawa and Essex County under Rule 75.1, the new rule will empower courts across the province to order that a mediation session be conducted in a contested passing of accounts pursuant to Rule 74.18 or in an order giving directions under Rule 75.06.
If the parties are able to reach an agreement at mediation, the terms of the settlement will often be documented in the minutes of settlement. But what happens if the parties come to disagree about how the minutes of settlement are to be interpreted? This issue was recently addressed in the Ontario Superior Court of Justice’s decision in Mountain v Mountain Estate, 2015 ONSC 4929.
In this case, the parties signed the Minutes of Settlement on March 19, 2014. A dispute subsequently arose regarding the liability of the tax consequences of the implementation of the Minutes, and the parties sought orders from the Court.
The Honourable Justice Gray held that “the Minutes of Settlement, being a contract, are to be interpreted in the same way as any other contract.” In the result, after reviewing the terms of the Minutes based on the principles of contractual interpretation, Justice Gray concluded that the Minutes of Settlement in the case at bar were unambiguous and further clarification regarding the liability of tax consequences was not required.
The recent Mountain decision echoes the Ontario Court of Appeal’s decision in Olivieri v Sherman, 2007 ONCA 491, where the appellate court held that a settlement agreement is a contract subject to the general laws of contract. The decision also serves to emphasize the importance of carefully documenting and drafting the minutes of settlement in order to mitigate the risk of future contractual disputes. In particular, parties should turn their minds to any issues that may arise from the implementation of the settlement and try to address those issues in the minutes of settlement.
Thank you for reading.
Umair Abdul Qadir