Joint tenancy is a legal principle that applies to both real estate and to personal property such as bank accounts. It means that two or more people are designated as joint legal owners. If one of them dies, the remaining owner (or owners) automatically owns it all by “right of survivorship.”
This means that ownership passes from the deceased person to the survivor(s) without passing through the estate of the deceased person. That can have some significant advantages, including speed, the elimination of legal complexity and expense, and the avoidance of probate taxes.
In the case of relatively small estates, or when the intended transfers are entirely from one spouse to another, having all property in joint ownership can make sense. It avoids the expense of probate, and the several months that it can take.
Unfortunately, putting property into joint ownership can have unintended and harmful consequences if it is not well thought out and not clearly documented. These consequences can include costly and bitter litigation, pitting parents against their children, and brothers and sisters against each other.
Joint Tenancy in Bank Accounts
An elderly parent, particularly one whose health is declining, may feel the need to add a child as a joint signer on his bank account. Problems often arise when the parent has more than one child, and not all of them have been added as owners of the joint account. What happens when the parent dies? Was the child who was named as joint owner of the account entitled to have it all, or is she required to share it with her brothers and sisters?
The Supreme Court of Canada dealt with a joint account case of this type in its 2007 decision in Pecore v Pecore. That was a case where a father had named one of his daughters as a joint tenant of his bank account. After his death, there was a dispute about whether the money in the account should become the property of this daughter, or whether it was the property of the father’s estate, to be distributed according to his will. The Court noted that as “it is common nowadays for ageing parents to transfer their assets into joint accounts with their adult children in order to have that child assist them in managing their financial affairs, there should be a rebuttable presumption that the adult child is holding the property in trust for the ageing parent to facilitate the free and efficient management of that parent’s affairs.”
In deciding this case, the Court laid out three key alternatives that may be applied in such disputes:
- The standard assumption that should be made when a parent puts property into the name of an adult child without the latter giving anything in exchange is that it is done for convenience and efficient management. The child is only a trustee on behalf of the parent, holding the property in what is known as a “resulting trust.” After the parent dies, the beneficial owner of the property would be the parent’s estate, in spite of the joint tenancy.
- Alternatively, the parent may have intended to make a gift of the property at the time of the transfer, meaning that the daughter could have withdrawn money from the account for her own use at any time. The onus is on the recipient to prove that this was intended, rather than the default presumption of a resulting trust.
- As a third alternative, the parent may have intended to give the daughter not immediate ownership, but a gift of the right of survivorship, so she would become the sole beneficial owner when he dies. Again, the onus is on the recipient to prove it.
Often when there is a dispute, the court will have to rely on circumstantial evidence to decide which of these three situations applies in a particular case. Such evidence is always subject to interpretation and unpredictable outcomes.
It is better to try to prevent such disputes by starting with clear documentation. Either in the will, or in a separate signed and witnessed document, the parent should set out in writing the reason for having established the joint tenancy, and what should happen to that property after the parent’s death.
Joint tenancy in real estate
It is common for an elderly parent to be the owner of a debt free house. With real estate values having soared in many parts of Canada, even a modest home can have considerable value. Putting the house in joint tenancy can allow a quicker and easier sale after the parent passes on, as the surviving joint tenant is the legal owner and can sell it with a minimum of fuss.
Three kinds of problems may arise, however:
- Not all the children have been included as joint tenants, and there is a dispute about whether the proceeds of sale only go to the child or children who were included.
- The child who is a joint tenant has debt problems or goes bankrupt, and his creditors want to seize his share of the property.
- The parent and the child get into a dispute. For example, the parent might decide that he wants to sell the house, and the child resists.
All of these unfortunate scenarios have happened in different cases, and have led to costly problems and disputes.
In the 2010 Ontario case of Reid Estate, a 91-year old mother transferred title to her house in joint tenancy with one of her two sons shortly before her death. The brothers made various accusations and claims. However, the judge was able to use the presumption from Pecore that, when there is a gratuitous transfer, a resulting trust arises. Therefore, the son who was on title held it on behalf of the estate.
In the 2019 British Columbia case of Petrick, a son was a joint tenant owner of the condo occupied solely by his 82-year old mother. He had helped her by co-signing for her mortgage, which was found by the court to make him an actual owner rather than just a trustee. Therefore, when he went bankrupt due to business debts, his creditor was entitled to claim ownership of half the condo. This highlights the importance of ensuring that there is nothing that occurs during the lifetime of the parent that would overturn the presumption that the child is on title only as a trustee.
In some cases, disputes may arise between the parent and the joint tenant child while the parent is still alive. In the 2011 Alberta case of Chelen v. Chelen, an elderly man had put the title to his home in joint tenancy with one of his two sons after the death of his wife. The apparent purpose was so that this son would take control of it for his estate after his passing. Then, at the age of 86, the father decided he wanted to sell his house in order to move into a smaller home. The son refused to co-operate, and the father had to go to court, where he was successful in obtaining a reversal of the joint tenancy.
Joint tenancy problems can also arise in spousal relationships. In the 2017 Ontario case of Griffith v Davidson, Mr. Griffith paid for a house and gratuitously gave a joint tenancy interest to his common-law spouse, Ms. Davidson. Later, their relationship broke down, and he argued based on Pecore that there was a presumption that she held her share only on a resulting trust, and she was obliged to give it back. In reviewing the evidence, the judge found it was not a resulting trust, and instead the second alternative from Pecore applied. The loving relationship at the time the transfer was made supported an argument that Mr. Griffith intended it to be a gift. Once made, a gift cannot be revoked by the donor, even if he subsequently regrets making the gift. It is the intention at the time of the transfer to give a gift that determines the ownership. In cases of this type, it is always best to have clear documentation in the form of a cohabitation agreement: either to attest to it being a gift, or to show that it was not, as the case may be.
The risk of predatory marriage
Joint tenancy can have the benefit of serving as an asset protection tool against the risk of what has come to be known as “predatory marriage.” That may occur in a scenario where an elderly widowed parent (usually male) with diminished capacity is taken advantage of by a caregiver. The elderly parent may become emotionally dependent on the caregiver. He may be lured into a marriage with the much younger caregiver. The law states that quite minimal mental capacity is sufficient for a legal marriage. That means that even a person who would not have the legal capacity to make a new will can get legally married, as was found in the Ontario case of Banton v. Banton.
Typically, an elderly widowed parent will make a will to leave his property to his children. That does not provide any protection under current Ontario law, as marriage completely revokes an existing will. Therefore, the person who marries the caregiver will likely die intestate. Under the law of intestacy, the legal spouse will automatically inherit a substantial portion of the estate. Putting the elderly parent’s property in joint tenancy with his children can help guard against this if the will is revoked through marriage. The Ontario government is considering changes to the law to help prevent the risk of predatory marriages, but that may be a long time in coming.
This article was written by Peter S. Spiro, of counsel to Rogerson Law Group. It is provided for general informational purposes and may not be applicable to your individual case.
For your situation-specific advice, please contact our estate litigation lawyers in Toronto.