For people looking to plan their estate in order to minimize tax burdens, one of the most commonly advised strategies is to ensure that high-value properties are jointly owned, so that upon one’s death, the property will transfer by right of survivorship. If, for example, a person owns a home in their name only and they pass away, the house will be included in probate and could add thousands to the amount of probate fees owing by the estate. However, if that home was owned jointly by the deceased and, say, one of their children, the home would automatically transfer to the child and would not need to be probated.
This solution is used by families across the country and in most cases, it works exactly as it should. However, it pays to be cautious about selecting the appropriate person to add as a joint tenant, as a recent case illustrates.
The Facts of the Case
The applicant purchased a home in 1999. In 2015, acting on estate planning advice to put the home into joint tenancy in order to avoid inheritance tax, she added her son’s name to the title. She did not inform her son of this change, and he had made no contributions to the purchase or the upkeep of the home.
Two years later, the son’s business consented to a judgment in favour of a third party in the amount of $800,000. At this time, the son was still not aware that he was a joint owner of his mother’s home. A few months later, the third party registered a Certificate of Judgment against the son’s undivided half interest in the home.
The applicant brought an application seeking the following:
- An order that the son’s half interest in the home was held on a resulting trust in her favour;
- An order that her son transfer his interest in the home to the applicant;
- A declaratory order that the applicant was the sole beneficial owner of the home; and
- An order that the Certificate of Judgment be vacated from the property’s title.
The applicant relied on the principles of a resulting trust in order to establish that she had not intended to gift a half interest in the home to her son and that he maintained no beneficial interest in the property. As a result, the applicant claimed that the third part could not register the Certificate of Judgment against the property.
- Did the applicant gift an interest in the home to her son in 2015?
- Can the third party rely on the transfer to the son with respect to the Certificate of Judgment?
When examining whether the applicant had intended to gift the joint interest in the property to her son, the Court reviewed the Will that the applicant had executed at the same time she made the transfer. In that Will, the applicant declared the following:
I declare that I contemplate naming my son and others as joint owners of some of my assets, or designated beneficiary of my RRSP, insurance and other investments, it being my intention that upon my death, such to belong to the named beneficiary, at law and in equity, and that such are not to be shared or allocated to other persons.
The applicant executed a new Will shortly after the judgement was registered against the property’s title, in which she disinherited her son. The Court found that this second Will had been executed as a direct response to the Certificate of Judgement. The applicant claimed that her intention all along with respect to adding her son as a joint tenant had been to facilitate the transfer of the property to her grandchildren. However, this was not reflected in the Will she created at the time.
The Court found that it could only consider her intention at the time of the transfer, which based on the Will, had been to gift an interest in the property to her son. The Court rejected the resulting trust argument.
Given that the Court had found the registration had been intended as a gift, and the registration had been properly completed in the land title registry, the third-party creditor was entitled to rely on the registration. The Court concluded by saying:
[The applicant] took a risk in registering her son as a joint tenant on her property. Whether she was properly advised of that risk is not before me. However, once she made the decision to register an interest in the Burnaby Property in [her son]’s name, third party creditors of [her son] became entitled to register judgments against [the son]’s interest in the Burnaby property.
The Takeaway for Estate Planning Considerations
While the transfer of a property into joint tenancy is an excellent way to minimize fees and taxes for an estate after one’s death, it is incumbent upon the testator to carefully select the person to whom they transfer their property. A person who holds personal liability as a sole proprietor or partner in a business may not be the best choice, as they can find themselves on the hook for significant judgments relating to their business. It is vitally important to choose someone trustworthy and unlikely to incur such judgments against them. Speaking with a knowledgeable and experienced estate planning lawyer about your options can go a long way to avoiding a similar issue as what arose in this case.
The lawyers at Cherkowski Marsden LLP have over 50 years of combined experience in both estate planning and real estate law. They will work to advise on the most appropriate plan given your particular circumstances and ensure that you are fully aware of any risk involved. To arrange a consultation with an experienced lawyer, please contact their office online or by phone at 250-308-0338.