1 JOINT ASSET DISPUTES: HOW TO GET TO COURT AND THE EVIDENCE NEEDED TO BUILD A CASE by Wendy Griesdorf Estate Litigation Counsel Professional Corporation September, 2007 Gratuitous transfers of assets into joint names are becoming a practical reality as society ages and as elder parents are needing more assistance from their adult children in handling their finances. Transfers into joint tenancies are also becoming a common place method to avoid probate taxes. In cases where there is no beneficial transfer of ownership but the child’s name is added for administrative convenience or probate planning, then on the death of the parent, the child holds the joint asset by survivorship on a resulting trust in favour of the parent’s estate. In law, there is a presumption that such a transfer into joint names is made on a resulting trust because of the age-old position that “equity assumes bargains, not gifts” (Pecore, infra, at par. 24) Disputes relating to these types of joint assets may come before the court through several avenues. To ascertain the best course for relief, you need to understand who your client is in relation to the disputed asset and who the proposed defendant/respondent is in relation to the transferor. The three broad options are as follows: (1) to commence an action by statement of claim either under Rule 14 or by the simplified procedure under Rule 76; (2) where the disputed joint asset is real property, to apply by notice of application under Rule 14.05(3)(e) for a declaration in an interest in land; or, (3) to compel a passing of accounts under Rule 74. 2 Statement of Claim Where your client is an estate, by its estate trustee, then commencing an action by statement of claim may be your best and most straightforward vehicle for claiming a resulting trust against the recipient by survivorship of the deceased’s joint asset. If you know the value of the joint asset, then you may claim the specific amount in damages in addition to requesting a declaration that the defendant is holding the joint asset on a resulting trust for the benefit of the estate. However, in most cases, the date of death value of the joint asset is unknown when the claim is issued and so your requested relief will be a declaration of trust with a request for a determination of the value plus interest. Notice of Application If the joint asset in dispute is land, then you may wish to bring the matter before the court by way of a notice of application pursuant to Rule 14.05(3)(e) for a “declaration of an interest in or charge on land, including the nature and extent of the interest or charge …”. However, where there are material facts in dispute, which in almost all cases there are in these types of suits, then the matter will not be able to proceed by a hearing but rather an interlocutory court will have to grant an order giving directions to a trial of the issue so that viva voce evidence may be called. Passing of Accounts Where the transferee or recipient of the joint asset by right of survivorship is an estate trustee of the deceased transferor’s estate, and where your client is a disappointed 3 beneficiary of that estate having expected the joint asset to be included in the value of the estate, then your best forum to bring this matter before a court is a passing of accounts under Rule 74. This way your client can assess the entire activity of the estate’s finances and frame all of his or her objections to the estate trustee’s dealings as one matter before the court. When the joint asset does not appear in the accounting because it passed outside the estate by right of survivorship, your notice of objection to the accounts will include a demand that the asset be included in the statement of original assets on a resulting trust basis. A passing of accounts in this manner is also available where the transferee or recipient of the joint asset was a power of attorney for the deceased transferor while alive. Jurisdiction for an audit judge on a passing of accounts to scrutinize a transfer of an asset into joint names with an attorney or an estate trustee arises from the Estates Act Sections 49(2) and (3) which authorize an audit judge to review the whole of the deceased’s property and make inquiries into any claim of misconduct or default on the part of the estate trustee or attorney. Specifically, Sections 49(2) and (3) read as follows: 49(2) The judge, on passing of accounts of an executor, administrator or trustee under a will of which the trustee is an executor, has jurisdiction to enter into and make full inquiry and accounting of and concerning the whole property that the deceased was possessed of or entitled to, and its administration and disbursement. (3) The judge, on passing any accounts under this section, has power to inquire into any complaint or claim by any person interested in the taking of the accounts of misconduct, neglect, or default on the part of the executor, administrator or trustee occasioning financial loss to the estate or trust fund, and the judge, on proof of such claim, may order the executor, administrator or trustee, to pay such sum by way of damages or otherwise 4 as the judge considers proper and just to the estate or trust fund, but any order made under this subsection is subject to appeal. Section 49(4) authorizes the court to make an order giving directions to a trial of the issue so that viva voce evidence of the deceased’s intention made be called and adjudicated. Evidence of Intention This spring, the Supreme Court of Canada released two decisions that have an impact on the estates bar. These cases, Pecore v. Pecore (2007) CarswellOnt 2752 (SCC) and Madsen Estate v. Saylor (2007) CarswellOnt 2754 (SCC), attempt to shed light on the issue of ownership of joint accounts following the death of one of the account holders. Unfortunately, when read together, these decisions appear to provide conflicting conclusions about the evidence needed to establish the intention of the transferor and have the effect of muddying the waters for practitioners who need to advise clients on their likelihood of success when considering challenging joint asset transfers. In Pecore, a deceased father transferred the bulk of his assets into a joint account with his daughter who was one of three children. The daughter did not make any contribution to the accounts but rather the father controlled the accounts, paid taxes on the income earned on the assets, and even wrote a letter to the bank declaring that the transfer into joint tenancy in favour of his daughter was not a gift to his daughter but rather that he retained ownership of the assets. The claim in Pecore was brought by the daughter’s husband, from whom the daughter was divorced but who was a residuary beneficiary in equal shares with his ex-wife under his ex-father-in-law’s will. He claimed that his exwife held the joint assets in trust for her father’s estate to be distributed equally to them 5 as residuary beneficiaries. The trial judge found that the joint assets were gifted to the daughter and therefore did not form part of the father’s estate. The daughter’s exhusband appealed to the Ontario Court of Appeal, where the appeal was dismissed. He then appealed to the Supreme Court of Canada, where his appeal was dismissed yet again. In Madsen Estate v. Saylor, the deceased, also a father, opened a joint account with one of his daughters. Like Pecore, the funds in the account came entirely from the father who maintained control of the account during his lifetime, and the account was used solely for his benefit during his life. As in Pecore, the father paid all taxes on the income earned. In Madsen, it was the daughter’s siblings who claimed that the funds in the account formed part of the deceased’s estate on a resulting trust basis. In Madsen, the trial judge applied the presumption of resulting trust and found that indeed the daughter held the funds in trust for her and her siblings as equal residuary beneficiaries of the estate. The trial judge concluded that the presumption of advancement should be abandoned except in the most limited circumstances. As with Pecore, there was an appeal to the Court of Appeal, and then to the Supreme Court of Canada. Both appeals were dismissed. The focus for all the courts in both cases was the relevance and applicability of the competing presumption trust and presumption of advancement, including how and in what circumstances these presumptions were to be applied. In both cases, the majority for the Supreme Court of Canada clarified the role of the presumptions, preferring the presumption of resulting trust and limiting the presumption of advancement to transfers 6 from parents to minor children with a significant dissenting opinion in both cases by Abella J. As articulated by Rothstein J. for the majority, “… the long-standing common law presumptions continue to have a role in disputes over gratuitous transfers. The 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 (Pecore at par. 23).” Most important to remember is that this presumptions are rebuttable on a balance of probabilities (Pecore at par. 43) by evidence showing the transferor’s actual intention. This evidence of intention may include the wording of the banking documents, who accessed and used the funds in the account, whether there was a power of attorney granted, who paid the tax on the assets, and conversations the deceased had with third parties or advisors such as accountants, bankers, or lawyers. In addition, dependency of a child on the parent may be considered in rebutting the presumption of resulting trust but is not to be considered in the application of the presumption of advancement where the child is an adult. In both cases, the court emphasized that the focus of the inquiry is on the actual intention of the transferor and that the presumption is to be applied when the evidence of intention is unavailable or unpersuasive. In both cases, the court found evidence that the two fathers maintained control over the assets, that these fathers used the joint assets solely for their benefit during their lives, and that these fathers declared and paid all taxes on the assets. Nevertheless, in Madsen the court held that the presumption of resulting trust was 7 not rebutted on this evidence but in Pecore, the same evidence was used to conclude that the presumption of resulting trust was in fact rebutted. Somewhat more surprising, in Pecore, the court held that the transfer was a gift to the daughter despite a letter the father wrote to the bank stating that the transfer of the assets into his daughter’s name jointly was not a gift and that he remained the sole beneficial owner of the assets. This seemingly contradictory application of the evidence of intention between the two cases leads to the question whether these decisions are most result oriented than logically reasoned. Both decisions emphasize that each case turns on its facts but it is little help to practitioners in advising clients if the same facts lead to different conclusions. Rather, if we look at the “equities” of the cases, and particularly the relationship between the disputing parties, we may learn more about the application the presumption of resulting trust and the likelihood of success at court. In Madsen, the dispute was between siblings. In this light, it makes logical sense to apply a resulting trust if there was no evidence that the father loved the transferee of the joint assets any differently than her other siblings. However, in Pecore, the dispute was between a child of the transferor and an ex-son-in-law. By holding that the presumption of resulting trust was rebutted on the evidence in Pecore, the effect of the court’s decision was that the joint asset would stay “within the family”. Therefore, I suggest that it is helpful in taking on these joint asset cases to determine your client’s likelihood of success by looking both at the evidence as well as the sibling relationship between the parties. If there is no evidence of estrangement between the parent and any of the siblings, then it may be difficult to rebut 8 a presumption of resulting trust where the will treats the siblings as equal beneficiaries. Arguably, the testamentary instructions of an equal division among siblings could be used as evidence to rebut the presumption of resulting trust. Presumption of Undue Influence Not discussed in either Madsen or Pecore, was the presumption of undue influence articulated in the 1991 Supreme Court of Canada case Geffen v. Goodman Estate (1991) 81 DLR (4th) 211 (SCC). This presumption arises when a fiduciary accepts an inter vivos gift from a donee and may apply to situations where an aging parent makes a gratuitous transfer of an asset into joint names with a child who is caregiving for that parent and/or who is acting on a power of attorney for that parent. In Geffen, the court explained that it is concerned with “relationships of dependency” (at page 227) and therefore “the process leading upto the gifting should be subject to the judicial scrutiny because there is something so completely repugnant about the judicial enforcement of coerced or fraudulently induced generosity” (at page 226). The overall concern for the court is that the “acts of beneficence not be tainted” (at page 228) and therefore, the presumption of undue influence will be triggered simply on the “establishment of the presence of a dominant relationship” (at page 228). Fraudulent Conveyance Act Less frequent but relevant to this discussion are cases where a gratuitous transfer of assets into joint names has the effect of diminishing the estate such that creditor claims may be defeated. In such a situation, the Fraudulent Conveyance Act may apply if it can be 9 established that the intention of the transfer into joint tenancy was made to defeat creditors of the transferor’s estate. In such circumstances, even if there is evidence of an intention to gift the joint asset such that the presumption of resulting trust may be rebutted, a resulting trust may nevertheless be declared on the basis that there was also an intention contrary to Section 2 of the FCA to defeat a creditor of the estate. It is worthwhile noting as well that the Court of Appeal decision in Stone v. Stone (2001) CarswellOnt 2781 (CA) held that spouses may meet the definition of “creditors or others” under the FCA where transfers to children of assets are designed to defeat a spouse’s equalization right. In Stone the transfer of assets to the children from a first marriage of a dying father were outright transfers and not into joint tenancy. Nevertheless, gratuitous transfers made from an aging parent to children of a first marriage into joint names may be held to be a fraudulent conveyance if the intention of that transfer was to defeat the equalization rights of a second spouse.
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