Joint ownership of property is a common estate planning tool. Where property is owned jointly with a right of survivorship (as opposed to, for example, as tenants in common), the property passes in the normal course to the surviving joint owner on the other owner's death. In these circumstances, the property passes outside of the estate of the deceased joint owner. As a result, probate fees are avoided and the succession of the property is simplified. The recent case of Sawdon Estate v. Sawdon has expanded the use of this doctrine.
By way of background, in 2007, the Supreme Court of Canada in the case of Pecore v. Pecore appeared to have fundamentally altered the legal principles underpinning the law of joint ownership.
Prior to Pecore, it was commonly understood that the right to take by survivorship could not be gifted without also gifting joint beneficial ownership, which is the right to use and benefit from the property. In practical terms, on a transfer of money by a father, for example, into a bank account jointly owned with his daughter, with a right of survivorship, one of two possible outcomes could previously result. Either the daughter would become entitled to use the money for her benefit before and after her father's death or she would not become entitled to such and would have to transfer the money to her father's estate on his death. In both cases, the father would continue to be entitled to use the money for his own benefit.
Following Pecore, the applicable legal principles appear to have changed, as demonstrated by the decision in Sawdon Estate. In that case, a father transferred several bank accounts into joint accounts, with a right of survivorship, to himself and two of his five children. On the father's death, a charity that was a beneficiary of the father's estate argued that the funds formed part of the estate to which the charity was entitled and were not to pass to the children outside of the estate by right of survivorship.
The court concluded that the father had intended to create a trust when he transferred the funds into the joint accounts. Under that trust, the two children held the right to take by survivorship in trust for all of the father's five children. In arriving at that conclusion, the court notably held that the children had no beneficial entitlement to the contents of the bank accounts from the time they were opened, in turn suggesting that it is possible to gift the right to take by survivorship without also gifting present joint beneficial ownership.
The practical implications of Pecore and Sawdon Estate is that it now appears possible for a person to remain the sole beneficial owner of property transferred into joint ownership and determine the persons who are to receive that property on his or her death, while avoiding probate fees at the same time. Further, according to the court in Pecore, the transfer of the property into joint ownership should also not be subject to tax. That issue, though, was not argued before the court nor was it thoroughly considered by the court. As a result, it is possible that a future court could arrive at a different conclusion.
Without proper care and attention, the desired outcome may not always be achieved. The person's intentions at the time of the transfer determine which of the above three outcomes follows. Where they are not clear, certain legal presumptions apply to determine the outcome. As a result, it is important that the person's intentions are clearly expressed and documented, and that he or she acts consistently with those intentions. In ascertaining his or her intentions, courts often consider the control and use of the property and certain documents, such as tax filings and bank documents. As well, in certain circumstances, courts may also consider a declaration in the person's will expressing his or her intentions with respect to jointly-owned property.
While joint ownership appears to have become a more flexible estate planning tool, and the making of a gift of a right of survivorship might be creatively used in certain individual situations, it may be more appropriate and preferable to transfer property into a trust with a written trust agreement, as opposed to joint ownership. A trust adds a further degree of flexibility and certainty and can also result in a passing of property outside of one's estate like in Sawdon Estate.
Watch for our next blog on the use of trusts to protect an interest in a matrimonial home.
The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.