Tag: JOINT PROPERTY
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
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Although probate fees in Ontario are relatively modest (approx. 1.5% of the estate value), most wish to avoid or reduce them.
With respect to which assets you must pay probate fees on, section 1 of the Estate Administration Tax Act, 1998 defines the “value of the estate” as “the value of…all the property that belonged to the deceased person at the time of his or her death less the actual value of any encumbrance on real property that is included in the property of the deceased person”. As joint-property vests in the co-owner of the property immediately before the time of death of their co-owner, the asset cannot be said to belong to the deceased person at the time of their death. An exception, of course, is the rebuttable presumption of resulting trust expounded in Pecore v Pecore.
Although parents may wish to place assets in joint-ownership with an adult child to avoid probate fees, here are five ways that doing so can have negative consequences:
- No savings – If the resulting trust presumption that property transferred into joint tenancy by a parent to the parent and his/her adult child results to the deceased parent’s estate is not rebutted by showing a clear intention of a gift, the transfer may not work to save on probate fees.
- Loss of control – The property cannot be sold or mortgaged without the child’s consent.
- Negative tax consequences – the transfer of an asset with accrued gains to someone other than a spouse is a deemed disposition at fair market value. Further, if the property is the parent’s principal residence, half of the principal residence exemption may be lost for the years following the transfer during which the child is not living in the property.
- Spousal claims – The property may be exposed to claims against the child by his/her separated spouse.
- Creditor claims – financial troubles and/or declarations of bankruptcy can result in the child’s interest in the property being subject to creditor claims.
These and other potential pitfalls are reviewed in a recent piece in The Lawyers Weekly.
Thanks for reading,
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