Jane Sharks - Joint Ownership – A Potential Minefield for Advisors
•Descargar como PPT, PDF•
0 recomendaciones•771 vistas
Jane Sharks - Joint Ownership – A Potential Minefield for Advisors
Recomendados
Más contenido relacionado
La actualidad más candente
La actualidad más candente (20)
Destacado
Destacado (10)
Similar a Jane Sharks - Joint Ownership – A Potential Minefield for Advisors
Similar a Jane Sharks - Joint Ownership – A Potential Minefield for Advisors (20)
Más de Estate Planning Council of Abbotsford
Más de Estate Planning Council of Abbotsford (20)
Jane Sharks - Joint Ownership – A Potential Minefield for Advisors
- 1. Joint Ownership – A Potential Minefield for Advisors Jane Shanks, B.A., LL.B., TEP RVP, Wealth Planning Abbottsford Estate Planning Council 20 February, 2008
- 2. Presentation Outline • Forms of Joint Ownership • Presumption of Resulting Trust • Presumption of Advancement • Recent Cases • Tax Consequences • Other Options • Best Practices • Questions
- 3. 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
- 4. 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
- 5. Treatment of Joint Accounts After Death • Intention • Presumption of Resulting Trust • Presumption of Advancement
- 6. 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
- 7. 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.
- 8. 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
- 9. 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
- 10. 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.
- 11. 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
- 12. Recent Cases Pecore 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.
- 13. Recent Cases Pecore 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.
- 14. Recent Case Pecore 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
- 15. Recent Cases Saylor 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
- 16. Recent Cases Saylor 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.
- 17. 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.
- 18. 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
- 19. 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
- 20. 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
- 21. 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
- 22. Tax Consequences Principal Residence Exemption Joint Tenancy with Children • Full principal residence exemption no longer available after date of transfer
- 23. Other Options • General Enduring Power of Attorney • Limited Power of Attorney • Alter Ego Trust
- 24. 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
- 25. 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
- 26. 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
- 27. 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
- 28. Thank you!
Notas del editor
- More and more clients are becoming informed about estate planning and probate planning issues. There is a wealth of information available on the internet and various publications. One of the strategies often recommended in news articles is the use of joint tenancy as a probate avoidance technique, or as a means of simplifying the administration of an estate. While joint tenancy can be a very effective strategy as between spouses, it is often fraught with a minefield of problems when it pertains to ownership with a child or children, particularly at death. The lack of understanding of the actual consequences of implementing a joint tenancy strategy have led to increasing litigation. Almost 50% of the cases now reported in the estate litigation field are a result of joint tenancy.
- The purpose of the presentation today is to review the basic rules regarding joint tenancy, and to review some of the recent cases. My objective is to give you a heightened awareness of the potential minefield out there when advising clients about using a joint tenancy strategy.
- 2 Forms of Co-Ownership, Tenants in Common and Joint Tenancy With a tenancy in common, each co-owner owns a specified interest. There is no limit to the number of owners. For example, you could have 2 owners, each with an equal 50% interest, or with a different percentage interest, for example, 75% - 25%. You could have multiple owners with various interests. Assets can be held in tenancy in common in any percentages. Tenants in common differs from the typical joint tenancy WROS, as there is no right of survivorship associated with it. A co-owner can dispose of his share independently of the other owners. When a co-owner dies, his interest is transferable under the terms of his or her Will, or under the intestacy rules if there is no will.
- An asset can be owned jointly with one or more persons, there is no limit to the number of Joint owners. With a joint tenancy, each co-owner simultaneously owns 100% of the asset. Each joint owner has an undivided and equal legal interest, and may also have an undivided and equal beneficial interest in the asset. The question of beneficial ownership can be problematic, and is usually the source of litigation. It’s not his, its not hers, its ours. The most important feature of a joint tenancy is the right of survivorship. This is the element that leads to problems for planners and families. It is the source of most of the litigation surrounding joint tenancies. Upon the death of one joint owner, the deceased’s interest in the asset terminates, leaving the surviving joint owner or owners with full ownership, despite any attempts by the deceased to dispose of the asset in his Will. This is a common problem, where individuals attempt to gift assets owned in joint tenancy under the terms of their Wills. Because the assets pass by right of survivorship, they pass outside the terms of the Will. Example: if a bank deposit is owned by A and B as joint tenants, when A dies, B as the surviving joint tenant becomes the sole owner. This is true, regardless of what A says in his Will. If A in his Will said that his 50% share of the bank deposit was to go to a charity, the gift to the charity would not be effective, unless A had taken the necessary steps before his death to sever the joint tenancy and to change the joint tenancy to a tenancy in common. Almost any asset can be owned in joint tenancy, including land, bank accounts, stocks, bonds, mutual funds, etc.
- If there is a problem after death, the courts will first look for evidence of the intention of the testator. But if there is inadequate evidence, or the intention is unclear, then the courts will apply the presumptions, either resulting trust or advancement. The long standing common law presumptions provide a guide for courts in resolving disputes over transfers where evidence as to the transferor’s intent in making the transfer is unavailable or unpersuasive. The presumptions are of interest to estate and trust lawyers, and some family lawyers, but the average advisor or member of the public would not be aware of it. The presumptions were developed historically to guide the courts in dealing with disputes about gratuitous transfers and the difficulty in determining the transferor’s intention, once they have passed away. The presumptions are rebuttable presumptions. This means that a court will make the legal assumption if there is insufficient evidence to displace the presumption. This also means that the burden of persuasion is shifted to the opposing party, who must rebut the presumption. In the case of joint accounts, this means that the burden shifts to the transferee of the gift, to demonstrate that the transferor intended to gift beneficial ownership. The advantage of maintaining the use of the presumptions is that they provide a measure of certainty and predictability for individuals who put property in joint accounts and make other gratuitous transfers. Presumptions will operate where the evidence is unclear.
- A resulting trust arises when title to property is in one party’s name, but that party, because he did not contribute to the value of the property, is under an obligation to return it to the original title owner. To determine beneficial ownership, follow the money. The presumption of resulting trust is the general rule for gratuitous transfers and the onus is placed on the transferee to demonstrate that a gift was intended. The issue is one of intention, i.e. did A intend to make a gift to B at the time the asset was put into the names of A and B as joint tenants. While the presumption is rebuttable, the burden of proof is on B to prove that A intended to make a gift. This is difficult to do when A is no longer around. If the intention was to ensure that A intended to make a gift, and to ensure that the asset would pass to B on A’s death without problems, this does not achieve the objective. The problem could have been avoided if at the time the asset was registered into joint names, A had signed a deed of gift in which he clearly stated that it was his intention to create a true joint tenancy with right of survivorship, notwithstanding that B had not contributed to the cost of the acquisition. The presumption of resulting trust would be rebutted by the evidence of the deed of gift. Summary – whoever puts up the purchase money will be the beneficial owner .
- With the presumption of resulting trust, you follow the money SHOW ME THE MONEY
- Advancement is a gift during the transferor’s lifetime to a transferee who, by marriage or parent child relationship, is financially dependent on the transferor. Example: if A is a parent and registers an asset in joint names, with B, the child, the presumption of advancement will assume there is a valid transfer of beneficial ownership. When A passes away, B takes sole ownership. If there are other children, they may argue there was not a valid transfer, and that the assets should be returned to the estate. B has onus of proof. Avoid problem by appropriate deed of gift, A clearly sets out intention to create a true joint tenancy with right of survivorship. In the context of the parent-child relationship, the presumption has historically been used because the “father was under a moral duty to advance his children in the world.” Presumption also rests on the assumption that parents so commonly intend to make gifts to their children that the law should presume as much. Modern cases have been conflicted about whether the presumption of advancement would apply to a transfer from an elderly parent to an independent adult child, where the transfer is made to allow a child to assist in managing investments and the parent’s affairs. Because the issue of parent-child transfers was and continues to often be disputed, there was a great deal of uncertainty in this area of the law. Earlier this year, the SCC released two decisions regarding joint accounts, and the application of the presumptions, Both cases involved an elderly parent who opened a joint account with one of his children, upon the parent’s death, litigation ensued. We will look at cases in more detail, but in Pecore, the court narrowed the application of the presumption of advancement, so no longer available to independent adult children.
- Review a couple of cases leading up to the SCC decisions Gaunt and Woudenberg lived together in a common law relationship for three years. They purchased a property for $200,000. Woudenberg advanced all of the funds for the down payment of 64,000, and made all of the mortgage payments. When they separated, the plaintiff, Gaunt, took the position that she was entitled to a 50% interest in the property. She acknowledged that it was the defendant that had made all of the financial contribution, but argued that it was the common intention of the parties that this was a gift, and she submitted evidence to rebut the presumption of resulting trust. There was evidence of the plaintiff misappropriating funds from the defendants RRSP’s and attempting to cash his insurance policy. The court found she was not a credible witness. The defendant provided evidence that he did not turn his mind to the ramifications of how title was taken, and that there was no discussion of the implications, that he did not receive a clear explanation regarding the implications, advantages and disadvantages of the different options for registering title. The judge held that when the property was purchased, 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. In fact, there was evidence of the clear intention of the parties at the time of the transaction to the contrary. The court found the plaintiff was NOT entitled to an interest in the property. Court indicated that it is not the manner in which title is taken that is determinative, or whether or not one person was the sole contributor. The issue turns on whether or not there is evidence of the clear intention of the parties at the time of the transaction.
- In this case, the father transferred bank accounts and real estate into joint tenancy with one daughter. Upon the death of the father, the other five children argued that the bank accounts valued at 80,000 should form part of the estate and be divided equally among all six children, as per the terms of the Will. Without these accounts, the estate had a value of 4,000. At trial, the court found that the deceased intended to make a gift to his daughter. The trial court decision was based on evidence of the deceased father’s solicitor that he would have discussed with his client why he registered the child as a joint tenant, and he would have questioned whether it was intended as a gift, or a mere convenience, and explain the disadvantage of a joint tenancy, being that the child would immediately gain an interest in the properties. It was the evidence of the lawyer that it was clear to him that the deceased was not doing this as a mere convenience, but rather intended a gift to his daughter. On appeal, the BC CA looked at whether the evidence supported the conclusion of the trial judge, and found that it did. The Court of Appeal upheld the trial court decision, having looked at the evidence of the solicitor, along with the evidence of the deceased’s regular contact with his daughter, and lack of contact with the other children. The Court also reviewed the presumption of advancement in finding that the transfer was a gift, and found in this case, that the other evidence was sufficient to establish the gift, independent of the presumption of advancement The court found that the evidence was clear, and it did not need to rely on the presumptions. This judgment is of note because of the particular weight assigned by the Court to the evidence of the solicitor. The lawyers affidavit contained a description of the lawyers careful practice, of advising clients of the immediate interest in property a volunteer acquires upon the creation of a joint tenancy. Look at intention first, and then if evidence inadequate go to the presumptions.
- Each case is very fact specific. This case is interesting in that it is an indicator of the various types of evidence accepted by the Court. In this case, the court reviewed and assessed various types of evidence: The date the accounts were opened What documents were signed at that time Who received the bank statements Who deposited the funds Who wrote cheques and for what purposes The balance as at the date of death A bank employee testified that she had explained the right of survivorship when the joint account was opened, and that four years after the joint account was set up, the mother withdrew 80,000 and placed it in to a GIC in the sole name of the daughter, rather than in her own name or in joint names. The interest was to be paid to the joint account, and on maturity, the daughter was entitled to the funds. The daughter put those monies back into the joint account, because she wanted her mother to have the benefit of the monies, as well as the interest, if she needed it. The bank could not provide the signature cards for the account, but the court accepted the evidence of the bank employee. Evidence of various witnesses established that with respect to all of the children, the deceased had the closest relationship with her daughter Jeanne, that she spent winters at her daughter’s home.
- In this case, if the joint accounts held up as gifts to the daughter, she got the accounts. If the gifts were invalid, the accounts went to the father’s estate, out of which the former husband stood to benefit because he was in his father-in-law’s Will.
- The question in this case was whether the father intended to make a gift of the beneficial interest in the accounts with a right of survivorship upon his death to his daughter alone, or whether he intended that his daughter hold the assets in the accounts in trust for the benefit of his estate to be distributed according to his Will? Did the presumptions apply, and if so, which one? SCC reached an unusual and remarkable decision – it separated the right of survivorship from the beneficial interest during the transferor’s lifetime. It concluded that there were no gifts during the father’s lifetime, that beneficial ownership remained with the father, and the would be lifetime gift of the joint account was overridden by the presumption of resulting trust that applies to most gifts. But the court held that the inter vivos transfer of the right of survivorship was effective, with the result that the joint accounts passed to the daughter on her father’s death. The presumption of resulting trust was overridden by the evidence of his intention to make the gift of the right of survivorship. The court has separated the right of survivorship from the beneficial interest during the lifetime, but made it effective at death The court also held that the presumption of resulting trust (ie a gift is not intended) should generally apply to intergenerational transfers between parents and adult children. However, the presumption of advancement (ie. A gift is intended) would apply to transfers between parents and minor, dependent children. Conclusion: two components – the beneficial interest during lifetime, and right of survivorship. It is possible to grant the right of survivorship, without granting the beneficial interest during the grantor’s lifetime. Presumption of Resulting Trust applies – joint account between a parent and a child with a right of survivorship does not pass any beneficial interest on death, unless it can be established that there was an intention to do so. Evidence of intention will become important – review the bank documents, if inadequate and a gift is intended, prepare a deed of gift.
- Pecore decision is also interesting in that it provides guidance as to the types of evidence the court will look at to determine the intention of the testator. Bank documents – bank documents that set up a joint account are an agreement between the account holders and the bank about legal title, they are not evidence of an agreement between the account holders as to beneficial title. However, modern banking documents may be detailed enough that they provide strong evidence of the intentions of the transferor regarding how the balance in the account should be treated on death. If there is anything in the bank documents that specifically deals with intention regarding the beneficial interest, then the court will consider it. Control and Use of Funds – one factor, but on its own, such evidence will be of marginal assistance Power of Attorney – could be interpreted either way, access to funds could be accomplished solely by PA, and joint ownership unnecessary if convenience is the purpose, or if in combination with joint tenancy, that intention was something more, to ensure beneficial ownership was given to the transferee. Tax treatment – CRA is interested in beneficial ownership. Evidence about tax treatment and the weight of such evidence in determining intent must be determined by the trial judge.
- Another case that went to the SCC. This case involved an analysis of both presumptions. First look at the court of appeal level. The facts of the case were relatively common. The daughter, Patricia, was made a joint account holder by her father following the death of her mother. The accounts had a right of survivorship. Father also signed a power of attorney in favour of Patricia, and she remained named as the alternate executor under his Will, which was never changed after her mother’s death. Father retained control of the bank accounts, the funds were used solely for his benefit during his life. He also declared and paid all taxes on income earned from the accounts.
- The crux of the case related to the father’s intention. Did father intend to make a gift of the accounts to his daughter? Or, did he intend to remain the sole beneficial owner and have the assets pass pursuant to the terms of his Will? This Court of Appeal decision was a sensible and modern approach to the analysis of the old presumptions. The court wants to review all of the evidence to make a finding of fact about the party’s intention. It is only where the evidence itself is unclear that reliance on the presumptions becomes necessary. Look at the evidence of intention before applying presumptions . The Court went on to say that when dealing with the issue of joint accounts, the court should First evaluate the whole of the evidence, including the bank documents to determine whether there was a clear intention at the time of the transfer on the part of the late father to gift the joint account to his daughter. Second, if the intention of the late father remained unclear after this evaluation, then the court should conduct an analysis of the presumptions of resulting trust or advancement. The evidence at trial in this case established that when the father made his bank accounts joint accounts with his daughter, beneficial joint ownership was not intended and therefore the presumption of advancement was not triggered in this case. Therefore the daughter did not have beneficial ownership and the bank accounts should fall into the estate for distribution under the terms of the Will. The value of the bank accounts in this case was $365,000. This case was appealed to the Supreme Court of Canada.
- The SCC reviewed the earlier court decisions in Saylor v. Madsen, and reviewed the presumptions of resulting trust and advancement. Presumption of advancement did not apply because Patricia, the daughter was not a minor child. Presumption of resulting trust applied, but that it could be rebutted by evidence of the intention of the father. The burden of proof was on the daughter to rebut the presumption The court considered the evidence of the daughter and found that her testimony was inadequate to rebut the presumption. The trial judge had considered her evidence to be evasive and conflicting. However, the SCC said that the documents creating the joint accounts had to be accorded some weight in determining the intention of the father. The documents are to be given weight in proportion to the clarity with which they address the issue of beneficial entitlement. However, in this case, the documents lacked the clarity to determine the issue, for while the right of survivorship was clearly indicated, the documents did not contain any express reference to beneficial entitlement to the assets in the accounts. The TD Account agreement referred to a right of survivorship, but only to the extent that a survivor could withdraw funds. The CIBC Wood Gundy agreement provided for the steps to be taken at death, such as notification at death, providing a copy of the death certificate, and indicating that the survivor would continue to have the same rights with respect to the account. Given the lack of clarity in the documents, the outcome was unchanged and the appeal dismissed. Assets belonged to the estate. Madame Justice Abella had a dissenting opinion with respect to the presumption of advancement. She disagreed with the majority of the court and stated that the presumption of advancement should be applied in this case, that it should not be restricted to transfers to minor children.
- Since the Pecore case and the Saylor v. Madsen decision, thre has been one reported case dealing with joint accounts in BC, Doucette v. Clarke. Mildred left four adult children: Joslin, John, Diane and Louie. She appointed Diane and Louie as her co-executors. She left $5,000 to John and $5,000 to Joslin. She left her house to Louie, valued at $240,000 at the time of death (and at $420,000 at the time of trial). She left the residue to Diane, valued at approx $424,000 Total estate approx $850,000. Diane was a joint tenant on a GIC and designated beneficiary of a RRIF, totalling $230,000. Louie was a joint tenant on a GIC valued at $43,000. Joslin was a joint tenant on a GIC valued at $150,000. The three of them claimed their jointures, pursuant to the right of survivorship and took the money into their own accounts. John brought a WVA claim, and asked for a declaration that the jointures were subject to a resulting trust in favour of the estate and that there be a more equitable division of the estate. Joslin claimed against Diane and Louie for the same relief. Court found the evidence that Mildred intended to gift the joint accounts was lacking, and applied the presumption of resulting trust because all of the joint account holders were adult children, to bring the assets back into the estate. Evidence the court reviewed included: None of the children had contributed funds to the joint accounts; none of the children were even aware that the joint accounts existed, except for Diane. Mildred received all of the income and declared all of the income for tax purposes The banking documents indicated a right of survivorship, but did not include and express reference to beneficial entitlement to the assets. The solicitor who drafted the Will recorded that Mildred included all of the accounts and the family home in her list of the assets when discussing her Will plan with him. Contrast this with Pecore where the solicitor gave evidence of his practice to discuss the consequences of joint accounts and that the testator in Pecore understood the joint accounts would not form part of the estate. After bringing all of the assets into the estate, the court then dealt with the substance of the WVA claim, and found that Mildred had not made aequate provision in her will to satisfy the moral obligations to her children, and the court ordered that John should get 14% of the estate, 35% to Louie, and 25% to each of Diane and Joslin.
- In structuring the ownership of assets, advisors need to understand the distinction between beneficial ownership and legal ownership, in order to undersand the tax consequences. The tax rule of thumb is that if A transfers an asset to B, it will result in a deemed disposition. Similarly, if A transfers an asset to A and B as joint tenants, there will be a deemed disposition of a 50% interest in the asset. If there is an unrealized capital gain in the asset, A will be deemed to have 50% of the gain realized, and will report it in his tax return in the year of transfer. The exception to the rule of thumb pertains to spouses. When property is transferred between spouses, there is an automatic rollover of the ACB, and then there will be attribution of any income back to the transferor. However, if the transfer occurs at FMV, and consideration is paid, then the spouses can elect out of the rollover . For an inter-spousal transfer to be exempt from attribution, it must occur at FMV, and the transferor must elect in his or her tax return not to have the provisions of the spousal rollover apply. It is important to understand that the exception to spousal attribution is created by the payment of actual fair market value consideration by the transferee to the transferor. The principal residence exemption is often ignored by individuals when they transfer their home into joint tenancy with children. If the asset transferred is A’s principal residence, and if A has created a true joint tenancy of the asset, then only 50% of the increase in the value of the asset after the transfer can be sheltered with A’s principal residence exemption. Whether the other half of the gain can be sheltered with B’s principal residence exemption will depend on whether that residence is also B’s principal residence. If A decides to transfer his principal residence to his two children, B and C, and A comes off of the title, then A loses the PR exemption with respect to the whole of the capital gain after the transfer. That gain may only be sheltered if the residence is also the principal residence of B and C.
- CRA is not interested in legal ownership, they are interested in beneficial ownership. General Rule: Beneficial owners are equally responsible for the tax liability. General Rule: if A transfers an asset to B, it will result in a deemed disposition If A transfers account to A and B jointly, and beneficial ownership has changed, then this would result in a disposition. However, it would not be a disposition of the full amount, but a disposition of 50% of the account. If A transfers an account to A, B and C jointly, for example, to 2 children, then A would have disposed of 2/3 of the account. If there is an unrealized gain in the asset, A will be deemed to have 50% of the gain realized, and will report it in his tax return in the year of transfer. Example: Parent adds an adult child to an investment account, and intends to make a gift, beneficial ownership has changed. Child acquires 50% of the account at FMV. If ACB of account was 100,000, and FMV at time of transfer is 150,000, then parent has a disposition of one half of 150,000 or 75,000, and a capital gain of 25,000, which is taxable in the year of transfer. Child’s ACB for her share of the account is 75,000. Any future income or capital gains will be taxed 50% to each of them.
- An election is available to a transferor spouse or common law partner to have the account transferred at FMV. In such a case, the transferor will realize proceeds for a 50% share at FMV, and the transferee will have a new cost base reflecting the FMV of the 50% share. It is important to emphasize that the exception to the spousal attribution is created by the actual payment of fair market value consideration by the transferee to the transferor, and by filing the election. FMV Consideration + the election = no attribution
- The principal residence exemption is often ignored by individuals when they transfer their home into joint tenancy with their children. If the asset transferred is A’s principal residence, and if A has created a true joint tenancy of the asset, and A adds one child to the title, then only 50% of the increase in the value of the asset after the transfer can be sheltered with A’s principal residence exemption. Whether the other half of the gain can be sheltered with B’s principal residence exemption will depend on whether that residence is also B’s residence. If A decides to transfer his principal residence to his two children, B and C, and A comes off the title, then A loses the PRE with respect to the whole of the capital gain after the transfer. That gain may only be sheltered if the residence is also the principal residence of B and C.
- The first step is to identify the clients objective. If the objective is to make a gift, then a joint tenancy can be effective. Of course, documenting the intention with a deed of gift will ensure the client’s true intentions are understood. Even if the intention is to make a gift, the client should be informed about the risks associated with a joint tenancy, ie. That they now have equal ownership, and are potentially exposed to the creditors or other claimants of the joint owner. There have been cases where a parent finds that his house must be sold in order to pay debts of a joint tenant child. If on the other hand, clients are looking for a “convenience” solution to allow a child/caregiver to conduct basic banking and investment activity, this can be accomplished by a power of attorney. A general enduring power of attorney is one that allows the attorney to do anything on the donor’s behalf that the donor can do. It is a simple yet powerful document. It allows the attorney to sell or mortgage land, deposit, withdraw, and transfer funds from bank accounts and deposit accounts. The main thing an attorney cannot do is make a Will. An attorney also cannot make gifts on behalf of the donor. The attorney is restricted from any self-dealing, but often we see this is a duty that is breached in abuse situations. A limited power of attorney is one that is restricted to a specified piece of property or account, or for a specified period of time, or for a specified transaction. An alter ego trust can be a substitute for a power of attorney or for a Will, but has not gained popularity in Alberta. Because the probate fees are not an obstacle in this province.
- Many of the cases arising from disputed joint property could be avoided if the client is clear about his or her intention, and if there is clear documentation that evidences the nature of the transfer. If the client is clear that he or she intend to make a gift, then a deed of gift should be prepared by a lawyer A deed of gift will overcome a presumption of resulting trust.
- Establish a bare trusteeship, whereby the child or children hold the property as bare trustee for the parent.
- Cannot over emphasize the importance of documenting your file, particularly when working with elderly clients who are asking you to transfer an investment account to joint tenancy with a child or with children. Be sure you communicate with the client, not the caregiver, or other interested party who may be attending the meeting. Ask probing questions, and inquire whether the client understands the information and advice being provided. When holding an estate planning or gift planning meeting, particularly with seniors, meet with your client in a private environment where they will feel comfortable discussing their personal situation. If you are concerned at all about mental capacity, make detailed notes of your meeting, confirm your discussion by way of letter to the client, and outline next steps, if any. Consider holding a second meeting and obtain the permission of the client to invite the lawyer to the next meeting