( Disponible en anglais seulement )
A recent B.C. Supreme Court decision provides another cautionary tale about the use of joint tenancies as part of an estate plan. Family members often think holding assets in a joint tenancy will be an efficient way to devolve property to younger members, avoiding the cost and trouble of the probate process. However, unanticipated problems can often arise especially when one joint tenant encounters financial troubles.
The case of Petrick (Trustee) v Petrick, 2019 BCSC 1319 involves the joint ownership of a condominium by a mother and her son. The property was purchased with a mortgage granted to both Mr. Petrick and his mother, Ms. Chilton. Ms. Chilton paid the down payment, deposit for the purchase, the bulk of the mortgage payments and other costs associated with the property. Ms. Chilton was the only person who ever resided in the property. Counsel for Ms. Chilton asserted that the joint tenancy was only created as a feature of Ms. Chilton’s estate plan. Specifically, Ms. Chilton swore an affidavit that « my purpose in [registering Mr. Petrick on title to the property] was not to make a gift of a half interest in the condominium to Rock Petrick but rather to arrange my affairs in such a way that in the event of death, the beneficial ownership in the property would pay to my son Rock Petrick, without the necessity of first obtaining a grant of letters probate and paying probate fees. »
Mr. Petrick fell into financial troubles and transferred his interest in the home to his mother during foreclosure proceedings against him in 2014. Mr. Petrick’s creditor alleged this transfer was a fraudulent conveyance. A fraudulent conveyance exists where a disposition of property is made to delay, hinder or defraud creditors and others. It can only exist where the person holds a beneficial interest in the property. The key issue before the court was whether Mr. Petrick had a beneficial interest in the property.
The court cited Pecore v Pecore, 2007 SCC 17 for the proposition that property held in joint tenancy can give rise to three situations regarding the beneficial interests of the title holders:
- A true joint tenancy, where the joint tenants are each owners of the whole and enjoy the full benefit of ownership;
- A resulting trust, where only one tenant has a beneficial interest and the other, usually a gratuitous transferee, holds title in trust and has no beneficial interest; or
- The « gift of the right of survivorship » wherein a joint tenant is gratuitously placed on title with no beneficial interest in the property during the lifetime of the donor but if the donee survives the donor, the donee will receive the entire property by right of survivorship.
In evaluating the facts in Petrick against these three situations, the Court first discussed two legal presumptions. In Pecore, the Supreme Court of Canada found that with respect to a gratuitous transfer of a property from a parent to an adult child, the presumption of resulting trust would apply. However, with respect to interest in land, the court must also consider subsection 23(2) of the Land Title Act (British Columbia), which provides that indefeasible title is conclusive evidence that the person named on title as the registered owner is indefeasibly entitled to an estate in fee simple to the land. Generally, courts have found that where there is a gratuitous transfer between parent and child, the presumption of resulting trust will displace the presumption of indefeasible title under the Land Title Act. However, in Petrick, the court stated the « it is important not to overstate the importance of either the presumption of resulting trust or the presumption of indefeasible title. Neither is engaged in circumstances where the actual intention of the transferor at the time of the transfer is clear on the evidence. »
On the basis of the evidence in Petrick, the court held that because value was given by Mr. Petrick to obtain the property, there was no « gift of the right of survivorship, » nor was there a resulting trust. In Pecore, the Supreme Court of Canada held that a resulting trust arises « when title to property is in one party’s name, but that party, because he or she is a fiduciary or gave no value for the property, is under an obligation to the original title owner. » Mr. Petrick had been a co-borrower on the property and so there was not a completely gratuitous transfer. By becoming a co-mortgagor, Mr. Petrick took on risk and had, therefore, opened himself up to creditors in relation to the property already. Moreover, in her affidavits, Ms. Chilton stated that Mr. Petrick was on title so that the property would not fall into her estate and be subject to probate. This evidence did not support an argument that Ms. Chilton intended that her son hold the property in a resulting trust. If Mr. Petrick were holding the property on a resulting trust, the property would fall into Ms. Chilton’s estate and be subject to probate.
As there was no gift of a right of survivorship nor a resulting trust, the Court found that Mr. Petrick acquired a beneficial interest in the property at the time the property was purchased. It was, in fact, a true joint tenancy.
Mr. Petrick admitted that the reason for transferring his interest in the property in 2014 was because he was in serious financial difficulties. As a result, the court found the transfer was a fraudulent conveyance and the appropriate remedy was to order that one-half of the property be conveyed to the trustee in bankruptcy. However, Ms. Chilton was entitled to reside on the property for as long as she wished and when she ceases to occupy the property, or on her death, the property shall be sold and the net proceeds are to be divided between the Trustee and Ms. Chilton (or her estate).
The Petrick decision provides a clear summary of the possible beneficial ownership interests arising when a property is registered in a joint tenancy. It is also another reminder of the importance of considering the potential drawbacks of holding assets as joint tenants. Holding an asset jointly makes the asset vulnerable to claims against any of the title holders. Without clear and precise evidence of intention, planning with joint tenancies can often result in unexpected and unwanted consequences.