Law Times

www.lawtimesnews.com Page 10 February 4, 2008 / Law Times More cases will likely follow Joint account decisions impact trusts and estates lawyers A pair of Supreme Court of Canada decisions on joint accounts have had impor- tant implications for trusts and es- tates lawyers — and similar cases are likely to follow. In Pecore v. Pecore and Madsen Estate v. Saylor, the court addressed the question of how joint bank ac- counts are to be treated when one of the account-holders dies. The defendant in the Pecore case, Paula Pecore, held joint ac- counts with her father. After his death, she redeemed the balance in the accounts on the basis of a right of survivorship. When Pecore and her husband divorced and a dis- pute over the accounts arose dur- ing their matrimonial property proceedings, he claimed that the balance in the accounts formed part of the residue and should be distributed according to the will. Based on the presumption of advancement, the trial judge ruled that the father intended to make a gift of the beneficial interest in the accounts to his daughter alone. The Supreme Court dismissed the appeal but noted that the pre- sumption of advancement, which applies equally to fathers and mothers, is limited "to gratuitous transfers made by parents to minor children," and that the presump- tion of a resulting trust should have been applied, which would have led to the same conclusion. Liza Sheard, with Evans Swee- ny Bordin LLP in Hamilton says, "The Supreme Court said that the presumption of gift or the pre- sumption of advancement should not apply between a parent and an adult child, even if that adult child is a dependent. So that's very help- ful, so now you know that that presumption doesn't apply. "Now the child who has the money has to show that the parent intended to make a gift to them, or the other legal presumption — that's the presumption of resulting trust — that's the presumption that will prevail," she says. The court also said you don't really look to those presump- tions unless there is a question of whether the transferor intended the gift or not, she notes. In the Madsen Estate case, the appellant, Patricia Ann Brooks, was a joint account holder with her father, while the father retained control of the bank accounts. Fol- lowing his death, Brooks' siblings began litigation against her, as she did not include the accounts in the distribution of the estate. The trial judge found there was no evi- dence to support Brooks' position that her father intended to give the joint accounts to her as a gift, and held they should be included in the dad's estate. The Ontario Court of Appeal affirmed the decision and the SCC dismissed the appeal. Rosanne Rocchi, with Miller Thomson LLP, says both deci- sions clarify the presumption of advancement could only apply be- tween a parent and minor children, with the burden of proof shifting in the case of adult children. In Madsen, she says, the court came to the conclusion they hadn't established sufficient evidence to show that a gift had been made, and there had been a resulting trust. But she notes the court provided no guidance as to the type of indi- cia that practitioners could count on. "It would have been nice for them to say, 'These are the indicia that we will look to in determining whether or not there has been a true joint tenancy created.'" Rocchi notes that in Pecore the court did not explain the tax evi- dence, which she says "is usually, in many cases, considered to be very good evidence. "It would have been nice to have a list of indicia," she adds. Normally, says Sheard, either people give assets away in their lifetime and trigger a disposition of at least half of that asset, or they give it away on their death, in ac- cordance with the formal require- ments of doing a will. "You can't say, 'This is a gift that will only take effect on my death,' unless that piece of paper that makes that gift qualifies as a will," she says. "Previous courts have struggled with, 'Is this a testamentary dis- position?', in which case signing a bank account disposition isn't enough, because that's not enough to meet the formal requirements of a will. And if it's not testamentary then you must have given it away in your lifetime," she says. The SCC created a new hybrid type of gift that is neither a lifetime gift nor a testamentary gift by say- ing a person has given away, in life- time, the right to keep whatever is left over in the account when the owner of the account dies. "It's a gift you make in your life- time of the survivorship interest in a bank account," she says. "That's left a big question for the account- ing world to ponder: is this an in- ter vivos disposition that triggers a capital gain or loss. We don't know the answer to that one yet." Sheard also notes while the old- er case law before Pecore and Mad- sen Estates said one can't look to the banking documents as evidence of intention, the Supreme Court said some weight of intention can be put into banking documents, al- though it may not be conclusive. "What is happening now is that people are saying, 'If you are trying to make a gift of the survivorship interest in a bank account, it's prob- ably smart to say that,'" she says. Even before the decisions, it has become more common for people to have separate evidence that a gift is intended, she says. Adult children can't rely on the presumption of ad- vancement, so if a gift is intended, people are more aware, and there is a greater importance on banking documents than before. Following these cases, Rocchi notes that for those who are going to have property in joint tenancy, it is easiest to have something in writing saying that it is a gift. There will likely be more cases as the use of joint tenancies is be- coming more common. "A lot of these situations arose in the past because of probate fees," she says. There are situations where peo- ple used joint tenancies to avoid probate tax, holding it in trust until the death of the transferring joint tenant, she says. In those cases, many people did not report any gift for tax purposes. "In many of these situations, it is not intended to be a gift," she says. The ruling "clarified what was a murky issue," says Sheard. 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