Joint Ownership – A Potential Minefield for Advisors

Jane Shanks, B.A., LL.B., TEP

RVP, Wealth Planning

Abbottsford Estate Planning Council

20 February, 2008

Presentation Outline

• Forms of Joint Ownership

• Presumption of Resulting Trust

• Presumption of Advancement

• Recent Cases

• Tax Consequences

• Other Options

• Best Practices

• Questions

Joint Ownership – Tenants in Common

• Each co-owner owns a specified interest

• No right of survivorship

• Almost any asset can be owned jointly as tenants in common, including land, bank accounts, stocks, bonds, mutual funds, etc

• Interest is transferable under the terms of a Will, or under intestacy rules if there is no Will

Joint Tenants with Rights of Survivorship

“It’s not his; it’s not hers; it’s ours.”

• Unity of title - each co-owner simultaneously owns 100% of the asset

• Unity of interest - undivided and equal legal interest (and beneficial interest?)

• Beneficial interest challenges - one joint owner can claim the other owner is holding his interest on resulting trust for the claimant

• One joint owner can sever tenancy unilaterally

• Right of survivorship

Treatment of Joint Accounts After Death

• Intention

• Presumption of Resulting Trust

• Presumption of Advancement

Presumption of Resulting Trust

• Equity assumes bargains, not gifts

• General Rule: If A is the original owner of the asset, or provides the funds to acquire the asset, then A intends to retain beneficial ownership (even though legal title is joint)

• The presumption of resulting trust is that when A transfers title to A and B together, A intended to transfer legal title, but retain beneficial title

• When A dies, B will hold 100% of the asset on trust for A’s estate on resulting trust

• Presumption can be rebutted by evidence showing that the transferor intended a gift

• Transferee has onus to demonstrate that a gift was intended

Presumption of Resulting Trust

Example:

• If A transfers his asset from A, to A and B as joint tenants; or

• If A provides all the purchase money and purchases an asset in the names of A and B as joint tenants

• Then A has made a transfer to B for no consideration and the law or resulting trust will apply

• The presumption of resulting trust – A intended to transfer legal title, but retain beneficial title.

Presumption of Advancement

• Reverses the presumption of resulting trust in situations where there is a special relationship between A and B, and presumes a valid gift was made

• Applies between spouses, parents to children, children to parents

• Rebuttable by evidence of intention, challenger has onus of proof

• SCC decision in Pecore v. Pecore rejected presumption of advancement as it pertains to independent adult children, applied presumption of resulting trust

Recent Cases – Resulting Trust

• Gaunt v. Woudenberg, (2005), 74 OR (3d) 665 (Ont SCJ)

• Plaintiff and Defendant lived together in a common law relationship for three years

• They purchased a house as joint tenants

• Defendant provided the funds for the down payment and made all mortgage payments before and after the separation

• Issue: whether the Plaintiff was entitled to a 50% interest of the equity in the property

• Decision: there was no common intention that the property was to be jointly owned or that each party was to have a beneficial interest in the property

Recent Cases – Presumption of Advancement

• Cooke v. Cooke Estate (2005) 16 ETR (3d) 108 (BC CA)

• Father transferred bank accounts to joint with his daughter

• At Father’s death, daughter claimed sole beneficial ownership

• Five siblings claimed the funds should form part of the estate and be divided pursuant to the terms of the Will

• Issue: Whether the father intended to make a gift with a right of survivorship

• Decision: At trial, the trial judge found sufficient evidence to support the intention to make a gift. The finding was affirmed by the appeal court.

Recent Cases – Resulting Trusts

• Comeau v. Gregoire and Akerley, 2007 NSCA 73

• Elizabeth Scott, 90 year old widow, died without a Will, survived by 10 children

• Joint bank account with daughter Jeanne Akerley

• Mother declared and paid taxes on the income, and was responsible for all transactions in the account

• Bank employee had explained the right of survivorship to them, and testified that she would not have closed the account at death to the daughter if it had not been joint with rights of survivorship

• Issue: whether there was a gift of the joint account to the daughter, or a resulting trust in favour of the Estate

• Decision: Presumption of resulting trust rebutted, joint account belonged to the daughter, not the estate

Recent CasesPecore v. Pecore, 2007 SCC 17 • Father transferred bulk of his assets in joint accounts with his daughter

Paula. Father provided financial help to Paula and her family.

• Father maintained control, declared and paid taxes on the income

• At Father’s death, Paula assumed sole ownership based on right of survivorship

• Father’s Will divided residue equally between Paula and M (Paula’s husband)

• At marital breakdown of Paula and M, M claimed presumption of resulting trust applicable and therefore assets formed part of residue. Paula claimed presumption of advancement applicable.

• Trial judge found that Father intended to transfer beneficial ownership, presumption of advancement applied. Court of Appeal found not necessary to rely on presumption of advancement because presumption is only relevant in absence of evidence of actual intention or where the evidence is evenly balanced.

Recent CasesPecore v. Pecore, 2007 SCC 17

• Issue: Whether assets in joint accounts to be included in father’s estate upon his death? Whether presumption of resulting trust rebutted? Whether presumption of advancement applied, or does it apply only to transfers made between a parent and a minor child?

• Decision: Presumption of advancement should only apply to gifts between a parent and a minor child. Presumption of resulting trust will apply to gifts from a parent to an adult, independent child on the basis that the child is holding the property in trust for the ageing parent to facilitate the free and efficient management of that parent’s affairs.

• The gift was upheld because the evidence clearly demonstrated the intention of the father was that the joint accounts would go to Paula alone on his death through survivorship, even though the presumption of resulting trust should have applied.

Recent CasePecore v. Pecore, 2007 SCC 17

Evidence the court will consider to determine transferor’s intention:

• Bank documents

• Control and use of the funds

• Granting of a power of attorney

• Tax treatment of the income

• Evidence subsequent to the transfer if relevant to intention at the time of the transfer

Recent CasesSaylor v. Madsen Estate 2005 Ont CA

• Father gratuitously transferred all of his bank accounts and investments into joint title with his daughter.

• Daughter made no deposits to the accounts, and withdrew funds only on father’s instructions.

• Father declared and paid all taxes on income earned from the accounts.

• On father’s death, daughter claimed sole beneficial ownership of the assets and did not include the joint accounts in the estate.

• Siblings claimed she should make restitution to the estate

Recent CasesSaylor v. Madsen Estate

• Issue: Whether assets held in joint accounts to be included in father’s estate upon his death? Whether presumption of resulting trust rebutted? Whether presumption of advancement applicable?

• Decision: Presumption of advancement should apply, but not required to consider the presumptions, because the intention of the father at the time of the transfer was demonstrated on the evidence. The intention of the father at the time of the transfer was the determinative factor. The Court of Appeal found there was no evidence of an intention to give beneficial ownership to the daughter.

Madsen Estate v. Saylor, 2007 SCC 18

• SCC held: presumption of resulting trust applied, daughter held legal title on resulting trust for father. Daughter had burden of rebutting the presumption of resulting trust by showing that father intended to gift the assets to her on the balance of probabilities.

• SCC held: presumption of advancement did not apply

• The documents creating the joint accounts had to be accorded some weight in determining the intention of the father.

• Both the T-D Account Agreement, and the CIBC Wood Gundy Account Agreement indicated right of survivorship, but no clear reference to beneficial entitlement to the assets in the accounts.

• Outcome: Daughter unable to rebut presumption of resulting trust. Assets belonged to the estate.

Doucette v. Clarke, 2007 BCSC 1021

• Wills Variation Act action

• Mildred Doucette left four adult children.

• In her will she left nominal gifts to two of the children, and substantial gifts to the other two children

• Mildred registered ownership of specific assets in joint tenancy with each of three of the children

• Issue: whether the jointly owned assets were subject to a resulting trust in favour of the estate

• Decision: there was insufficient evidence to establish that Mildred intended to make gifts of the joint accounts. Presumption of resulting trust applied; joint assets formed part of Mildred’s estate

Tax Consequences

• CRA Position: If beneficial ownership is unchanged, no disposition for tax purposes on a transfer to joint ownership

• General Rule: If beneficial ownership has changed, a deemed disposition occurs

• Exception: Spousal transfers

• Principal Residence Exemption

Deemed Disposition Upon a Change in Beneficial Ownership

Considerations in determining beneficial ownership:

• Documentation of gift, if any

• Account Agreements

• Contribution of funds or assets to the account

• Control and decision making over the account

• Use of the income

• Reporting of the income and payment of tax

Exception: Transfer to Spouse

• No capital gain or loss will occur on the transfer to a spouse or common-law partner

• Automatic rollover of the ACB, income and capital gains attributed back to the transferor

• Elect out of rollover and attribution if transfer takes place at FMV

Tax ConsequencesPrincipal Residence Exemption

Joint Tenancy with Children

• Full principal residence exemption no longer available after date of transfer

Other Options

• General Enduring Power of Attorney

• Limited Power of Attorney

• Alter Ego Trust

Documenting Intention - a Deed of Gift

Deed of gift should contain:

• A clear description of the property

• Current FMV, as well as basis for valuation

• Confirmation that no consideration was paid for the property

• Date on which the gift is made

• If donee is married, a declaration that any income from the gift is to be excluded from family property

• Signature of the donor

• Signature of the recipient

Documenting Intention – a Declaration of Trust

• Use a Declaration of Trust if the intention is to transfer title to joint tenancy as a matter of convenience, or as a probate avoidance strategy

• Parent transfers legal title into joint tenancy with child or children, while leaving beneficial ownership unchanged

• Declaration of Trust documents that the child or children being added to the title has only a legal interest and not a beneficial interest

Documenting Intention – a Declaration of Trust

Declaration of Trust should contain:

• Complete legal description of the property

• A statement that although legal title to the property is registered jointly, the child has no beneficial interest in the property, and holds legal title as a bare trustee for the parent

• A statement that any distributions of capital or income, and any rights in respect of the property, belong to the parent

• A statement that the co-owner agrees to transfer the property or any other action requested by the parent, and not to do anything without the prior written direction of the parent with respect to the property

Best Practices – Document Your File

• Meet with your client alone, without a caregiver

• Be aware of any illness or condition that could impact capacity

• Ask probing questions

• Question whether a joint tenancy is intended as a gift or a matter of convenience

• Ask for permission to invite the client’s lawyer to participate in the meeting to explain the pros and cons of different forms of ownership

• Make detailed notes

Thank you!