ESTATE LITIGATION:
A PRIMER
TRUSTS AND ESTATES LAW / YOUNG LAWYERS DIVISION
Joint Assets & Resulting Trusts: A Recipe for Litigation?
Dealing with Joint Assets in the Estates Litigation Context
Pia Hundal, Eisen Law
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Presumptions of Trust in Transfers: Parents, Children, Spouses, Study Guides, Projects, Research of Law
The legal concepts of beneficial ownership, advancement, and resulting trust in the context of gratuitous transfers of property. It discusses the presumptions of advancement and resulting trust, their applications, and how they can be rebutted. The document focuses on transfers between parents and children and between spouses, providing examples and case law. It also touches upon the importance of evidence in determining the transferor's intention.
What you will learn
- How can the presumption of resulting trust be rebutted in transfers between spouses?
- When does the presumption of advancement apply in transfers between parents and children?
- What is the difference between legal and beneficial ownership?
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2021/2022
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ESTATE LITIGATION:
A PRIMER
TRUSTS AND ESTATES LAW / YOUNG LAWYERS DIVISION
Joint Assets & Resulting Trusts: A Recipe for Litigation?
Dealing with Joint Assets in the Estates Litigation Context
Pia Hundal, Eisen Law
Joint Assets & Resulting Trusts: A Recipe for Litigation? Dealing with Joint Assets in the Estates Litigation Context Pia Hundal, Eisen Law
A. Introduction
Many estate litigation matters concern disputes regarding the beneficial ownership of joint assets, after the death of a title holder.
In this paper, I set out the basic principles behind joint asset disputes in Ontario, as well as provide a review of the case law to date. Specifically, I address:
Unravelling the presumption of advance & the presumption of resulting trust. Rebutting the presumptions. When the presumptions apply: assets gratuitously transferred to children versus assets transferred between spouses. Evidentiary considerations and joint accounts versus real property.
B. The Presumption of Advancement & the Presumption of Resulting Trust
Legal ownership
The doctrine of resulting trusts arises out of equity. Equity recognizes a distinction between legal ownership and beneficial ownership. Legal ownership or legal title refers to property held in the name of a person or persons.^1
Beneficial ownership
Beneficial ownership is actual ownership is “described as ‘[t]he real owner of property even though [the property] is in someone else’s name’”.^2
(^1) Pecore v Pecore , 2007 SCC 17, 2007 CarswellOnt 2752 [ Pecore ] , (WL Can) at para 4, citing Cask v Aumon (1990), 69 DLR (4 2 th) 567 (Ont HC) at 570. Ibid.
“If the presumption of advancement applies, an individual who transfers property into another person’s name is presumed to have intended to make a gift to that person. The burden of proving that the transfer was not intended to be a gift, is on the challenger to the transfer. If the presumption of resulting trust applies, the transferor is presumed to have intended to retain the beneficial ownership. The burden of proving that a gift was intended, is on the recipient of the transfer .”^6
C. When do the Presumptions apply?
The presumption of advancement has been limited to gratuitous transfers from a mother or father to a minor child. 7
The presumption of resulting trust applies to all other gratuitous transfers, including between spouses and from a parent to an adult child.^8 The presumption also applies to gratuitous transfers from an grandparent to an adult grandchild.^9
Pecore is the leading decision on this topic, although the subsequent case law has developed more nuances to Rothstein J.’s reasons as to when these presumptions respectively apply.
There has been one exception found to the limited application of the presumption of advancement since Pecore. The exception is that the presumption of advancement analysis and evidentiary burden will apply in cases where – on marriage breakdown – there is a claim by one spouse to funds that were inherited by the other and placed into a jointly held account.^10
(^6) Ibid at paras 80-81. (^7) Pecore, supra note 1 at paras 38-40. (^8) Ibid at paras 98-106: It is worth noting that in her concurring decision, Abella J. found that the presumption of advancement ought to apply to gratuitous transfers from parents to adult children on the basis of natural love and affection: “The origin and persistence of the presumption of advancement in gratuitous transfers to children cannot, therefore, be attributed only to the financial dependency of children on their father or on the father’s obligation to support his children. Natural affection also underlay the presumption that a parent who made a gratuitous transfer to a child of any age, intended to make a gift.” 9 10 Falagario v Falagario , 2016 ONSC 648 [ Falagario ], (CanLII) at para 71. See for example: Kosterewa v Kosterewa , [2008] QDFL 5332, 2008 CarswellOnt 5995 (SCJ) [ Kosterewa ]; and Gall v Galla, 2015 ONSC 37, 2015 CarswellOnt 12.
Gratuitous Transfers between Spouses
Historically, wives were afforded the benefit of the presumption of advancement for gratuitous transfers from their husbands. This changed with the introduction of reforms to the matrimonial property legislation in Canada^11 , beginning with Ontario in 1975.^12
In Ontario, the Family Law Act^13 sets out the regime for the division of property between spouses on the breakdown of a marriage (including death) and accordingly, the presumption of advancement is of no effect.^14 The rationale in the jurisprudence that an unjust enrichment or other equitable claim will “in the vast majority of cases” be “fully addressed the operation of the equalization provisions under the Family Law Act ”.^15
The Family Law Act provisions relating to property division on marriage breakdown does not extend to common law spouses. However, common law spouses do not get the benefit of the presumption of advancement for gratuitous transfers.^16
Gratuitous Transfers from Parents to Children
In Pecore, Rothstein J. stated that the presumptions continue to play a role in resolving disputes around gratuitous transfers. He found that presumption of resulting trust is the general rule for gratuitous transfers from a parent to an adult child and that the presumption of advancement applies to gratuitous transfers to a minor child.^17
It is worth noting that with respect to adult children, Rothstein J. rejected the notion that dependant, adult children should have the benefit of the presumption of advancement and accordingly, the presumption of resulting trust applies to all adult children.^18
(^11) Waters, supra note 3 at 379: Waters et al suggest that the presumption of advancement is still of some effect in British Columbia, Manitoba and Alberta, but has “weakened” in its scope. This paper is limited to Ontario law. 12 13 Waters, supra^ note^3 at 379. 14 Family Law Act,^ RSO 1990, c F-3, Part I. 15 Waters, supra^ note^3. See also:^ Rathwell v Rathwell , [1978]^ 2 SCR 436, 83 DLR (3d) 289 at 304. McNamee v McNamee , 2011 ONCA 533, 2011 CarswellOnt 7168 [ McNamee ], (WL Can) at para 66. See also: Martin v Sansome , 2014 ONCA 14; Korman v Korman , 2015 ONCA 578; and Murray v Bortolon, 16 2016 ONSC 5164. Veitch (Trustee of) v Rankin , [1997] OJ No 4642, 41 OTC 14, 1997 CarswellOnt 4361 (CJ (Gen Div)) [ Veitch ] , WL Can at para 33. 17 18 Pecore, supra^ note^1 at paras 38-40. Ibid at para 40.
After the father died, the issue was whether the funds in the account belong to:
a. The two adult children who had title to the accounts by right of survivorship; b. The deceased’s estate by virtue of a resulting trust in favour of the estate; or c. The deceased’s five children in equal shares.^21
Gillese J.A. found that at the time of the transfer of the accounts into joint names, legal title immediately vested in the deceased and his two sons equally. However, the deceased created a trust. When the two sons became legal owners of the joint accounts on the death of their father, they became the only two legal title owners of the accounts, but they held the accounts in trust for themselves and their siblings in equal shares:
“ In legal terms, when the Bank Accounts were opened Arthur made an immediate inter vivos gift of the beneficial right of survivorship to the Children. Thus, from the time that the Bank Accounts were opened, those holding the legal title to the Bank Accounts held the beneficial right of survivorship in trust for the Children in equal shares ”.^22
E. Rebutting the presumptions
Presumption of Advancement
Both presumptions are rebuttable. The presumption of advancement may be rebutted by evidence that the transfer was not a gift. The burden is on the transferor to show – on a balance of probabilities - that the transfer was not a gift.
Presumption of Resulting Trust
The presumption of resulting trust places the onus on the recipient or transferee to prove – on a balance of probabilities - that a gift was intended by the transferor.^23 In estates litigation, this can be particularly challenging because the transferor is dead.^24
(^21) Ibid. (^22) Ibid at para 67. (^23) Sawdon Estate , supra note 20 at paras 57-58. (^24) Usually a barrier to provide evidence.
The presumption of resulting trust applies where a transferor is presumed to have intended to retain the beneficial ownership of the transferred property. The burden of proving that a gift was intended falls on the transferee/recipient of the property transferred.^25
In order to rebut the presumption of resulting trust, the transferee must prove that the transferor intended to make a gift. A gift is defined as the voluntary transfer or property to another without consideration.^26
F. Evidentiary Considerations
Both presumptions are equitable remedies and equity presumes bargains, not gifts.^27
In Kosterewa v Kosterewa ¸ the court found that the husband rebutted the presumption of advancement claimed by the wife over funds inherited by husband. The funds were placed in a joint account that was dormant (other than accruing interest) and not used by the husband for the couple’s joint benefit.^28 The court found that the husband had rebutted the presumption of advancement and showed that the husband intended that the money he inherited from his mother’s estate was to be his alone and none of it was mean to be a gift to his wife. The other facts that the husband used to support his position was that he claimed the interest income on his tax returns and that to divide that income between the husband and wife would have saved money for the couple in taxes. Also, funds the husband had received previously were deposited in existing, active joint accounts and used for family debts and vacations. Thus, the fact of the funds being in a joint account was not a barrier to the husband rebutting the presumption of advancement, given his use of the funds.^29
(^25) Pecore, supra note 1 at para 81. (^26) McNamee , supra note 15 at para 23. (^27) Waters, supra note 3 at 372; see also: Falagario, supra note 9 at paras 68-71. (^28) Kosterewa, supra note 10 (WL Can) at paras 23-24: The fact that the wife took out some of the money to pay for credit card debt, without her husband’s knowledge – was not evidence that the funds were advanced to her in equal shares with her husband. 29 Ibid at paras 26-28.
Both Pecore and Sawdon Estate related to the treatment of bank accounts transferred during a parent’s lifetime into joint names with a child/children with the right of survivorship. Some considerations, including those above, include:
Evidence that the transferee contributed to property in such a way to suggest that she expected an interest to vest in her eventually; and The use of the property.^34
For both joint accounts and jointly held real property, independent evidence of the Deceased’s statements regarding his or her intentions has been found to be persuasive – for example statements made to the deceased’s will drafting lawyer.^35
In addition, the tax treatment of the property will be relevant in both classes of evidence, such as whether capital gains were completed and paid, as well as the payment of any income tax.^36
Finally, the deceased’s estate planning has found to be useful evidence in cases where an inter vivos transfer was made to equalize what each of the deceased’s children received.^37
(^33) Sawdon, supra note 20 at para 58, citing Pecore, supra note 1 at paras 58-70. (^34) Falagario, supra note 9 at paras 75-77. (^35) Ibid at paras 29, 58-67 and 76 and Sawdon, supra note 20 at paras 38-39. (^36) McNamee, supra note 15. (^37) Latner Estate v Latner , 2016 ONSC 364, 2016 CarswellOnt 3253, (WL Can) at para 50.