Category: Joint Accounts
A recent decision of the Ontario Superior Court of Justice revisits the issue of whether a presumption of resulting trust should be imposed in the case of a beneficiary designation.
As our readers will know, the leading case on presumptions of resulting trust remains Pecore v Pecore, 2007 SCC 17, in which the Supreme Court summarized the state of the law relating to property that had been gratuitously transferred into joint tenancy with a non-dependent adult child: the asset becomes subject to a presumption that it is impressed with a resulting trust in favour of the parent’s estate. The presumption may be rebutted by evidence that it was, in fact, the parent’s intention to gift the jointly-held property to the adult child by right of survivorship.
Last year, we saw a couple of decisions apply the principles of Pecore to novel situations, potentially expanding the applicability of presumptions of resulting trust. For example, in Calmusky v Calmusky, 2020 ONSC 1506, the doctrine of resulting trust was applied to a RIF for which an adult child had been designated as beneficiary.
In Mak Estate v Mak, 2021 ONSC 4415, Justice McKelvey reviewed the issue of whether an asset for which a beneficiary designation was in place should be subject to the presumption of resulting trust. The plaintiff residuary beneficiaries of their mother’s estate sought an order setting aside the 2007 beneficiary designation for the mother’s RRIF, under which the defendant, their brother and another residuary beneficiary of the estate, was named. The evidence suggested that the deceased had relied upon the defendant, who lived with her and drove her to appointments after the death of the parties’ father in 2002.
After addressing the issue of whether a presumption of undue influence applied to the RRIF beneficiary designation (and finding that it did not because a beneficiary designation is not an inter vivos gift), Justice McKelvey turned to the issue of the principle of resulting trust, writing (at paras 44, 46):
In my view…there is good reason to doubt the conclusion that the doctrine of resulting trust applies to a beneficiary designation. First, the presumption in Pecore applies to inter vivos gifts. This was a significant factor for the Court of Appeal in Seguin, and similarly is a significant difference in the context of a resulting trust. Further, the decision of this Court in Calmusky has been the subject of some critical comment. As noted by Demetre Vasilounis in an article entitled ‘A Presumptive Peril: The Law of Beneficiary Designations is Now in Flux’, the decision in Calmusky is, ‘ruffling some features among banks, financial advisors and estate planning lawyers in Ontario’. In his article, the author comments that there is usually no need to determine ‘intent’ behind this designation, as this kind of beneficiary designation is supported by legislation including in Part III of the Succession Law Reform Act (the “SLRA”). Subsection 51(1) of the SLRA states that an individual may designate a beneficiary of a ‘plan’ (including a RIF, pursuant to subsection 54.1(1) of the SLRA.)
It is also important that the presumption of resulting trust with respect to adult children evolved from the formerly recognized presumption of advancement, a sometimes erroneous assumption for a parent that arranges for joint ownership of an asset with their child is merely ‘advancing’ the asset to such adult child as such adult child will eventually be entitled to such asset upon such parent’s death. The whole point of a beneficiary designation, however, is to specifically state what is to happen to an asset upon death.
As a result, the defendant was entitled to retain the proceeds of his mother’s RRIF, as the plaintiffs unable to establish any intention of their mother to benefit her estate with the asset without the benefit of a presumption of resulting trust.
In light of the conflicting applications of Pecore under the Calmusky and Mak Estate decisions, it will be interesting to see how this issue may be further developed in the case law. For the time being, however, it may be prudent to take care in documenting a client’s wishes to benefit an adult child by way of beneficiary designation in the same manner as we typically would in situations of jointly-held property.
Thank you for reading.
Many of our readers will be aware that on an application for dependant’s support under Part V of Ontario’s Succession Law Reform Act, certain property that may not be considered an asset of the deceased’s estate can be “clawed back” into the estate for the purposes of considering and funding an award of dependant’s support. Subsection 72(1)(d) provides that “a disposition of property made by a deceased whereby property is held at the date of his or her death by the deceased and another as joint tenants” shall be deemed to be part of the estate.
Whether jointly-held property is caught by s.72(1)(d) depends on whether there was a “disposition” into that joint tenancy. When a property is initially purchased by a deceased person and another in joint tenancy and remains as such at the time of death, it can not be said that there was a disposition into joint tenancy: s. 72(1)(d) would not appear to apply.
However, when the ownership arrangement of a property is more intricate, whether or not jointly-held property will be deemed to be an asset of the estate within the context of a dependant’s support application becomes less clear.
Consider the following scenario:
- At first instance, title to a property is taken as follows:
- 50% held solely by A; and
- 50% held jointly by A and B, who are common law spouses.
- Years later, A conveys the 50% held by her alone to herself and her common law spouse jointly.
- Therefore, immediately preceding A’s death, 100% of the property is held in joint tenancy by A and B.
Now, after A’s death, A’s minor children assert a dependant’s support claim. Does section 72(1)(d) apply, such that the property can be made available to fund a payment of dependant’s support?
The decision in Modopoulos v Breen Estate,  O.J. No. 2738 interpreted section 72(1)(d) of the Succession Law Reform Act to mean that, only if the property was owned solely by the deceased and later transferred into joint tenancy prior to death, would there be a “disposition” into joint tenancy.
In the unique set of circumstances described above, it could be argued that A never solely owned the property and, therefore, the later disposition is not captured by section 72(1)(d). However, another perspective is that the 50% interest held initially by A as a tenant in common (with A and B jointly as to the other 50%) would have formed part of her estate if the subsequent disposition to B as a joint tenant did not take place. This interpretation strongly supports that section 72(1)(d) of the Succession Law Reform Act would in fact apply to make the 50% interest in the property available in satisfaction of a dependant’s support claim. Certainly such an argument is consistent with the remedial intent of the legislation.
To our knowledge, there has yet to be a decision in Ontario that addresses whether section 72 would apply to a disposition out of a tenancy in common and into a joint tenancy, such as that featured in our hypothetical example. It will be interesting to see how a court would interpret similar transactions if encountered in the future.
Thank you for reading.
Other blog entries that you may enjoy reading:
- SLRA Dependant Awarded Entirety of Estate
- Priority of Claims for Dependant’s Support Over Other Claims Against an Estate
- The Risks of Joint Tenancy
- Joint Accounts Between Spouses
Although there are certainly some benefits that may result from making ownership of a property or other asset joint with another individual (e.g. avoiding payment of estate administration tax in relation to that property upon the death of one of the joint owners), there can also be risks associated with jointly-held property.
In the recent British Columbia Supreme Court decision in Gully v Gully, 2018 BCSC 1590, a mother added her son as a joint tenant on real property that she owned (the “House”). Her decision to do so was based on estate planning advice that she had received. The mother did not tell her son that she had added him as a joint tenant, and the son did not contribute to the House in any way, either before or after it was transferred into joint tenancy. Contemporaneously with the registration of title to the House in joint tenancy, the mother also executed a last will and testament specifically setting out that in naming her son as a joint owner, she intended that the asset would belong to him upon her death.
A couple of years after the mother had added the son as a joint tenant on her House, the son and his software company consented to judgment in favour of a creditor in the amount of $800,000.00. At the time he consented to judgment, the son was still not aware that he was a joint owner of his mother’s House. The creditor subsequently registered a certificate of judgment on the son’s undivided half interest in the House.
The mother brought an application seeking a declaration that the son held his interest in the House on a resulting trust in her favour. The court stated that the proper evidence of a transferor’s intention is at the time of the transfer, because a transferor can change his or her mind subsequent to the transfer, but may not retract a gift once it has been made. In this case the court concluded that the mother did intend to gift an interest in the House to her son at the time the joint tenancy was registered on title, and that the son did not hold his interest on a resulting trust in favour of the mother.
Further, the court stated that even if it had found that the mother had not intended to gift the House to the son, the fact that the joint tenancy was registered on title to the House meant that the creditor could rely on title to enforce its judgment against the son’s interest in the House. Although the issue of whether or not a resulting trust arises in the circumstances may be relevant as between family members or beneficiaries of an estate, it is not applicable in the case of a third party creditor claiming against a registered interest in land. As a side note, the creditor in this case did advise the court that it did not intend to execute the judgment against the House while the mother was still living there.
Before making any changes to ownership of an asset, it is crucial to obtain comprehensive advice as to all of the possible consequences of doing so—both positive and negative. Communication regarding joint tenancy is also important. This will help ensure that all parties are aware of the assets in which they may have an interest and the nature of any such interest, so they are in a position to manage their affairs accordingly.
Thanks for reading,
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Is an Estate Trustee allowed to withhold an inheritance? What if the inheritance is a specific bequest and the Estate has claims against the beneficiary? These questions were considered in June Brayford v Brayford.
I will do my best to simplify the facts. The testator named his two sons as Estate Trustees. His Last Will left a specific bequest, the proceeds of a CIBC account, to his wife (from a second marriage). The residue passed to the Estate Trustees. While the testator was still alive, a joint account was set up with his wife (an investment account with Desjardins Financial and Edward Jones).
After the testator‘s passing, the Estate Trustees took issue when the wife withdrew funds from the joint account, believing that the funds should have fallen into the residue. They alleged that the testator lacked the capacity to set up a joint account, and that the wife (who was also the testator’s guardian for property and personal care) breached her fiduciary duty by the setting up of the joint account. In response, the Estate Trustees refused to pay the specific bequest.
Two claims arose – the wife demanded payment of the specific bequest and the Estate Trustees claimed an equitable set off of the specific bequest pending the resolution of the joint account assets.
The Court first considered the right of retainer as set out in Cherry v. Boultbee (41 ER 171), which sets out the right that an estate trustee has of keeping out of the share of an inheritance, a debt owing to the estate by the beneficiary. The court noted an exception to this right though – when the inheritance is a specific bequest. It is this exception that the wife relied on to compel the payment of the specific bequest.
The Estate Trustees claimed an equitable set-off. They wanted to withhold the payment of the specific bequest until the claim against the wife regarding the joint account was heard.
The Court looked to Olympia for the procedure to be followed when considering a claim for both right of retainer and set-off. It was held that given that the two claims were so closely connected, that it would be unjust to allow the wife to enforce the payment of the specific bequest without taking into account the claim by the Estate Trustees regarding the joint account. So, the Estate Trustees were allowed to hold off on paying the specific bequest, pending the outcome of their claim regarding the joint account.
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Attorneys and guardians of property are fiduciaries who are required to put the interests of an incapable person before their own. But what happens when the nature of ownership of the incapable’s property puts those interests at odds with one another?
The case of B (ME) v E (O) (Trustees & Guardians of), 2007 ABQB 259, explores the position of conflict created when a fiduciary holds property jointly with an incapable person and the potential for the conflict to cause the fiduciary to breach the duties that he or she owes to the incapable. The facts of the case relevant to this issue can be summarized as follows:
- E.B. had been the equivalent of a guardian of property for his mother, O.B.;
- B. suffered from ailments affecting both her physical and mental health;
- E.B. transferred real property into joint ownership with his mother; and
- E.B. subsequently predeceased O.B., raising the issues of:
- (1) whether it was intended that M.E.B.’s interest in the property transfer to O.B. by right of survivorship,
- (2) whether M.E.B. had breached the fiduciary duty owed to O.B. by placing the property into joint ownership and, if so,
- (3) whether the breach of fiduciary duty precluded M.E.B.’s estate from asserting an equitable claim in respect of the property against O.B.
On the issue of M.E.B. having transferred the property into joint tenancy with O.B., the Court made the following statements:
…[I]t would have been a clear conflict of interest for M.E.B., as O.B.’s trustee, to have intended that he and his mother hold the beneficial interest in the home as joint tenants. (para 134)
There is no evidence that [the lawyer attending to the transfer] advised M.E.B. he might be in a position of conflict or in breach of his fiduciary duty to O.B. in placing title to the Millwoods property in their joint names. (para 153)
The litigation at bar has resulted from O.B.’s acquisition of sole legal title through survivorship and it epitomizes the conflict that can arise when placing property into joint title between a dependent adult and her trustee. (para 169)
I find that M.E.B. was in breach of his fiduciary duty to O.B. in placing legal title to the property in their joint names without court approval. (para 170)
While this is a case from Alberta, it may nevertheless be the case that the same conclusion would be reached by an Ontario Court – that property jointly-held by a fiduciary and incapable person whose property he or she administers puts the fiduciary in a position of conflict with the potential to impact the suitability of the person to act as fiduciary and/or their ability to claim an interest in the joint property.
Thank you for reading.
David M. Smith
Other blog posts that you may enjoy:
“When a parent gives an adult child a joint interest in real property during his or her lifetime, can that gift include an irrevocable right of survivorship that has the effect of preventing the parent from later severing the joint tenancy?”
That was the question that was asked and answered in Pohl v. Midtal, 2017 ABQB 711 (CanLII).
Boiled down, the fact pattern raised in that case is quite common: parents transfer real property into joint tenancy with a child. Later, the relationship sours, and the parents want their property back.
In a prior decision, the parents relied on the Supreme Court of Canada decision of Pecore v. Pecore, and alleged that the property was held in trust for them. The court disagreed, finding that the presumption of resulting trust was rebutted on the evidence, and that a gift was intended.
Subsequently, the parents purported to sever the joint tenancy. The child objected, and commenced a claim for a declaration that the parents were not entitled to exercise their right to sever the joint tenancy.
The court concluded that in the circumstances, the gift of the joint tenancy included an irrevocable right of survivorship. While typically a joint tenant has the right to sever the joint tenancy, in making the transfer the grantor can gift an irrevocable right of survivorship. The court will review the evidence in order to determine the intention of the grantors at the time of the gift.
In determining that the transfer of joint tenancy included an irrevocable right of survivorship, the court noted that the parents, at the time of the transfer, clearly intended that the child would get the real property upon their deaths. In support of this, the court referred to the fact that on the same day as the transfer, one of the parents made a will that did not provide for the recipient (as she was to receive the jointly held property). Later, the other parent made a similar will that did not provide for the child, and stated in his will that “I have provided for [her] during my lifetime.”
The question is not without uncertainty, as there is competing case law to the effect that notwithstanding a gift of joint tenancy, both the grantor and the recipient maintain the right to convert the joint tenancy into a tenancy in common.
Have a great weekend.
I was surprised to learn of a recent statistic indicating that about half of all singles in Toronto under age 34 are living with their parents – I thought this was just the way we do things in my family! But seriously, if you are a parent longing to cut the ties that bind, or if you just want to help your adult child get a head-start in life, you have probably considered doing so by way of a gift or loan. To avoid any confusion or worse, litigation, it is important to document the transaction and record the intention.
If the intention is to loan, a loan agreement should be used. If, however, the intention is to gift, keep in mind that to have a valid gift there are three necessary elements: (i) intention to donate; (ii) acceptance by the donee; and (iii) sufficient act of delivery and transfer. The onus of proving that a gift is valid is on the recipient of the gift, who must show a clear and unmistakable intention by the donor to have voluntarily given the gift. In order to ensure legal clarity, using a deed of gift is ideal.
The benefit of using a deed of gift is that it can provide an answer to any challenges that others may have to the transfer in question, which we often see in situations of transfers of property (bank accounts, real property etc.) into the joint names of the parent and child. Otherwise, upon death, the gift is usually presumed to form part of the parent’s estate unless proven otherwise by the child.
Other potential benefits to using a deed of gift include increasing the chances of protecting the funds upon marital breakdown (e.g. if the deed of gift stipulates that the funds are for the child alone, and not the married couple, this may prevent the monies from forming part of the family assets). It can also assist an estate trustee to correctly apply a hotchpot clause (which often requires the executor to take inter vivos gifts into account when making an equal distribution amongst the beneficiaries) and distribute the assets as the testator intended.
Thanks for reading and have a great day,
Other articles you might enjoy:
You may also enjoy the July 7, 2017 interview of Nicole Ewing, a TD Wealth business succession advisor and tax and estate planner, which can be found on www.moneytalkgo.com.
Subsection 14(a) of the Family Law Act provides that property held by spouses in joint accounts shall be intended, in the absence of proof to the contrary, to be owned jointly. The presumption may be rebutted by the spouse who seeks to have such monies excluded from net family property (Belgiorgio v. Belgiorgio, 2000 CanLII 22733 (ON SC)).
In LeCouteur v. LeCouteur, 2005 CanLII 8726 (ON SC), the court held that the husband failed to rebut the presumption of resulting trust in respect of funds in a joint account that had “traditionally been used to carry out family decisions for funding special projects”, such as renovations.
In Belgiorgio, the court held that a joint bank account in which the husband deposited his inheritance was used for household expenses and purchases, and was commingled with household income. The court found that the inheritance lost its excluded character when it was placed in a joint bank account; it was his intention at the time he deposited the funds that was relevant.
In the recent Ontario Superior Court of Justice case of McLean v. Dahl, a husband sought a declaration that he was the sole owner of proceeds in a joint bank account in the amount of $94,565 at the date of separation.
The Court considered the following facts in arriving at a determination that the presumption of joint ownership was not rebutted:
- Both parties used the account as they saw fit; however, it was their practice to consult one another if major purchases were to be made;
- When the parties decided to grant a sizeable loan to friends, the funds came from the joint account. When the funds were repaid to the wife alone, she returned them to the joint bank account;
- When the parties decided to work on their marriage, they agreed to put these funds into a joint account on the condition that both their signatures were required to make a withdrawal;
- Mr. McLean intentionally transferred solely-held funds to the parties’ joint names;
- the spouses discussed major transactions using these funds;
- the parties shared the tax liability for income on these funds.
In summary, the Court observed that “…when the parties agreed to work on their marriage, after Mr. McLean closed the first joint account, they opened a second joint account into which each deposited monies in his or her control. This was the second time that Mr. McLean intentionally placed funds in Ms. Dahl’s control. It is obvious from his pattern of conduct that he intended her to have access to funds in joint accounts.”
Accordingly, the Court found that, “from the time that Mr. McLean added Ms. Dahl’s name to the account, she became a half-owner, and the parties were entitled to one-half the funds in the parties’ joint account in the amount of $47,282 each.”
Thanks for reading,
David Morgan Smith
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The idea of a joint bank account seems simple enough. Two people own assets in a joint account. When one of them dies, the survivor automatically gets ownership of the assets. Straightforward, right?
Unfortunately, not in every case. For example, in a very common situation – where an aging parent creates a joint account with an adult child – courts have looked closely at the intention of the parent in creating the joint account. Was it for convenience primarily, or was it intended as a gift to the surviving adult child? Did the parent understand the consequences of setting up a joint account?
Such arrangements have been the source of much litigation in Canada, and the Supreme Court of Canada has been quite clear: unless the survivorship intention in setting up the accounts is clear, courts will presume that joint account assets are held by an adult child on a resulting trust for the parent’s estate, and distributed according to the parent’s will.
For parents who are considering a joint account arrangement with an adult child – and intend the adult child to inherit the assets through survivorship – they may want to take some steps to ensure that this intention is clear. This includes:
- Communicating their intention to any other adult children they have, and any other beneficiaries, to reduce the chance of a dispute
- Documenting the joint account and the intentions for survivorship directly in their will
- Granting the adult child joint account holder a power of attorney in addition to the joint account arrangement. This shows that the joint account was not created for convenience alone, as the adult child could manage the parent’s financial affairs under the power of attorney.
Here is a good summary of court rulings on this matter: http://www.lerners.ca/lernx/joint-accounts-is-the-surviving-owner-really-entitled-to-the-money/. And for an overview of some of the risks associated with joint accounts, this article outlines some factors to consider: https://nelligan.ca/article/joint-bank-accounts-are-they-a-good-idea/.
While joint accounts can serve many useful purposes, they should be created carefully, with advance thought and sound legal advice.
Thank you for reading … Have a great day.
Divorces can change many things in relation to rights between two people, but it may not change everything you want it to.
Life insurance is a case in point. For example, let’s say Doug marries Jane and names her as the beneficiary of his $2,000,000 life insurance policy. After five years of marriage, Doug and Jane divorce and each “waives all rights to the other’s property except as set forth in this agreement”. The marital settlement agreement/property distribution divides assets between Doug and Jane.
Post-divorce, Doug never removes Jane’s name as the designated beneficiary on the insurance policy. Doug later remarries Susan, and stays married to her for 20 years until his death. As soon as Doug remarried 20 years previously, his existing will was considered revoked automatically, so it’s clear that Jane isn’t entitled to anything under the will. But Jane is still listed as the beneficiary on the life insurance policy. Who is entitled to the $2,000,000 – ex-spouse Jane or surviving-spouse Susan?
Based on Ontario court rulings, ex-spouse Jane may actually be entitled to the life insurance proceeds, despite the divorce settlement language. You can read about a similar case here: https://www.osler.com/en/blogs/pensions/october-2009/beneficiary-designation-in-favour-of-former-wife-t
Cases like this reinforce the need for spouses who are separating or divorcing to revisit all their estate planning documents to ensure they reflect their current wishes. This recent post contains a good discussion of how marital breakdowns can lead to unintended estate consequences unless a review of estate documents takes place – and changes are made if needed: http://www.osullivanlaw.com/blog/2015/03/the-importance-of-updating-your-affairs-on-separation-and-divorce.shtml
When the zip goes out of marriage, it’s still important to show your estate some love and do a thorough review of your assets and the documentation associated with them.
Thank you for reading.