In a previous issue of Lawyers Alert, we discussed "The Finer Points and Pitfalls of Joint Tenancy" in estate planning. We noted that a parent's property - a bank account for example - that is placed jointly in the names of the parent and an adult child can become problematic upon the death of the parent. Questions arise as to whether the parent intended ownership of the account to shift automatically to the child upon the parent's death, or rather to revert back to the parent's estate for distribution among the named beneficiaries. Many a family has been torn apart by such circumstances, with beneficiaries suing the estate and each other to resolve the issue.
Historically, the law in Canada was not helpful in providing a clear answer. For the most part, a gratuitous transfer results in a presumption that the transferee holds the asset in trust for the transferor, by way of resulting trust. This is because Equity presumes bargains, not gifts. This is a rebuttable presumption, so that the transferee can prove that a gift was intended and thus obtain full ownership of the asset. However, the law looked at transfers from parent to child in a different light. Parents are considered to have an obligation to support their children. Thus, it was presumed that a gratuitous transfer from a parent to a child resulted in a gift to the child. But judicial opinions differed on whether the presumption of gift applied equally to transfers from father to child and from mother to child.
Add to this the fact that in our modern financial world, elderly parents are more and more often using joint ownership with their children as a tool to help them manage their affairs. There are clear advantages to this trend. But consider the elderly and infirm mother who puts her life savings into a joint account with one of her daughters so that the daughter can manage her medical and household expenses. Upon the mother's death, those life savings would normally become the sole property of the daughter, without entering the mother's estate. The other daughters might receive nothing. Without a clear statement of intention from the mother, courts have struggled with the question of whether the account ought to remain with the one daughter, or revert to the estate for distribution.
Fortunately, the Supreme Court of Canada finally provided some clear guidance on this issue in the recent decisions of Saylor v. Madsen Estate (2007 CarswellOnt 2754) and Pecore v. Pecore, (2007 CarswellOnt 2752). The facts in the Saylor case are most relevant. The father's will provided for division of his estate equally between his three adult children. During his life, however, he made one of the daughters a joint signatory on his bank accounts which were used for his benefit until his death. The daughter claimed that the funds in the bank account became hers upon the father's death and ought not to become part of the estate.
The Supreme Court confirmed that the presumption of gift should rightly apply where a parent makes a transfer to a dependant child. This result is in accordance with the parent's obligation to support dependent children. However, in today's world there is no longer any justification for presuming a gift when such a transfer is made to an adult child. Without clear evidence of an intention to make a gift, such a transfer should be presumed to be held in trust for the parent and should revert to the estate upon the parent's death.
The Supreme Court's rulings finally provide some clear guidance on the question of gift vs. resulting trust. Legal and financial advisors would do well to consider the effect of these rulings when providing estate planning advice. If the intention is to provide an ultimate gift, that intention should be well-documented in order to satisfy the onus of rebutting the presumption of resulting trust that now applies.
Duane Chris is a non-practicing lawyer providing legal research and editing services in Southern Ontario. He can be reached at dchris@sympatico.ca or 519-588-2602.