Paula Pecore’s father transferred most of his wealth into joint bank and investment accounts with her. His financial adviser had told him that he could save probate fees and make transferring the investments after his death less expensive and cumbersome.
Paula Pecore’s father also gave her a power of attorney, which would allow her to manage his finances.
After he had transferred his investments into joint accounts with Paula Pecore, his accountant advised him that the transfers of investments could trigger capital gains tax. To avoid an immediate tax, Paula Pecore’s father wrote to the financial institutions advising that he was “the 100% owner of the assets and the funds are not being gifted to Paula.” He continued to pay income tax on all of the income from the investments.
Paula Pecore’s father continued to use and control the joint accounts for the rest of his lifetime. Although Paula Pecore made some withdrawals, she was required by her father to notify him before making any withdrawals.
After he transferred most of his wealth into the joint accounts, Paula Pecore’s father made a will, leaving most of his estate to Paula Pecore and her husband, Michael Pecore. The lawyer who made the will explained that life insurance, pensions and Registered Retirement Income Funds would flow to any designated beneficiaries outside of the estate, instead of as set out in the will. But, the lawyer did not discuss the joint accounts.
When Paula Pecore’s father died, the joint bank and investment accounts were worth about $1 million. He had contributed all of the funds.
Unfortunately, Paula Pecore and her husband, Michael Pecore, divorced. Michael Pecore claimed that Paula was holding the funds from the joint account in trust for the estate. He argued that Paula Pecore’s father had not gifted the funds to her during his lifetime. Although she took title to the accounts by right of survivorship, the beneficial ownership (the right to use and enjoy the funds) fell into Paula Pecore’s father’s estate, to be distributed under his will.
Does Paula Pecore get to keep the million dollar joint accounts? Or must she share them with her ex-husband under her father’s will?
Patricia Brooks’ father transferred his investments into joint bank and investment accounts with her. Patricia Brooks father used and controlled the joint accounts during his lifetime. In fact, Patricia Brooks did not make any withdrawals from the joint account during his lifetime. Her father continued to pay income tax on all of the income from the investments.
Patricia Brooks’ father also gave her a power of attorney, which would allow her to manage his finances.
The value of the joint accounts on Patricia Brooks’ father’s death was about $185,000. He had made all of the contributions to the accounts.
Patricia Brooks claimed the funds in the joint accounts by right-of-survivorship. But, her brother and sister disagreed. Under their father’s will, he directed his estate trustee to divide his estate into two, with one half divided among his three children, and the other half among his eight grandchildren. Patricia Brooks’ siblings claimed that she was holding title to the joint accounts as trustee for their father’s estate.
Is Patricia Brooks entitled to keep the proceeds from the joint accounts for herself?
In Pecore v. Pecore, 2007 SCC 17, released last Thursday, the Supreme Court of Canada unanimously held that Paula Pecore is entitled to keep the funds in the joint accounts.
In Madsen Estate v. Saylor, 2007 SCC 18, also released last Thursday, in a majority decision of eight to one, the Supreme Court of Canada, held that Patricia Brooks must pay the $185,000 in the joint accounts back to her father’s estate, to be distributed in accordance with his will.
Why did the court find in favour of the surviving joint account holder in one case, but not the other? The short answer is that in each case the trial judge made different findings in of fact. In one case, the trial judge’s findings led the Supreme Court of Canada to conclude that Paula Pecore’s father really intended to make a gift of the joint accounts to her. In the other case, the findings led the majority to conclude that Patricia Brooks had not established that her father intended to make a gift of the joint accounts to her. Cases dealing with joint accounts can be finely nuanced, making prediction of the outcome of any case difficult.
These two cases, which (at least superficially) appear so much alike, highlight the continuing problems with joint accounts and other joint tenancies in estate planning. Everyday, people transfer significant wealth into joint accounts with children or others, without fully understanding the implications, or documenting their intentions. In fact, their advisors don't always fully understand the implications either. When disputes occur, it is very difficult for the courts to sort out who is entitled to the benefit of the accounts.
The Supreme Court of Canada took the opportunity in these two cases to clarify some points of law, which I will discuss in future posts.
This is the first part of a series of posts I am writing on these two cases. My next post will be on the Supreme Court of Canada’s discussion of the presumption of advancement.
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