In this, my second part of a series on the two recent Supreme Court of Canada cases on joint bank accounts, I discuss how the Court has changed the presumption of advancement. You can read my first post on these two cases, Pecore v. Pecore, 2007 SCC 17, and Madsen Estate v. Saylor, 2007 SCC 18, here.
By way of background, if one person transfers an asset into another person’s name gratuitously, Canadian common law usually presumes that the person who made the transfer did not intend to make a gift. If you give me a one hundred dollar bill, the law presumes that I am holding the hundred dollars in trust for you. This is referred to as a resulting trust.
The presumption of resulting trust is only a presumption. If I give you a hundred dollars on your birthday, inside a card that says happy birthday, you have some pretty good evidence that I was making a gift to you. In that case, the presumption is rebutted.
As with much of the law, there are important exceptions to the presumption of resulting trust. In some circumstances, where the person who made the transfer and the recipient are closely related, there is a presumption of gift. This is called the presumption of advancement. Historically, the presumption of advancement arose in gifts from husbands to wives, and gifts from fathers to children.
If the presumption of resulting trust applies, the recipient must persuade the court that the person who made the transfer intended a gift. But, if the presumption of advancement applies, then the burden of persuasion is on those alleging that there was no gift.
The question of which presumption applies can be significant in estate litigation cases when the person who made the transfer is deceased. If the evidence is evenly balanced, then the presumption will determine who wins.
In Pecore, the trial judge had applied the presumption of advancement to the father’s transfer of investments into joint accounts with his daughter. After finding that the presumption of advancement had not been rebutted, the trial judge held that the daughter was entitled to keep the investments.
In Marsden Estate, the trial judge had applied the presumption of resulting trust to the father’s transfer of investments into joint accounts with his daughter. After finding that the presumption of resulting trust had not been rebutted, the trial judge held that the daughter had to pay the funds in the joint accounts back into her father’s estate.
In the Supreme Court of Canada, Mr. Justice Rothstein, writing for himself and seven other Justices, held that the presumption of advancement only applies to transfers from a parent to a minor child. The presumption of resulting trust applies to transfers from a parent to an adult child.
Mr. Justice Rothstein wrote in Pecore that a parent’s obligation to support a dependant child was the main justification for the presumption of advancement in transfers from a parent to a child. Parents do not have an obligation to support independent adult children. In the case of dependant adult children, Mr. Justice Rothstein was of the view that given the different degrees of dependency, it would create too much uncertainty to apply the presumption of advancement to transfers from parents to dependant adult children.
Mr. Justice Rothstein also reasoned that a presumption of resulting trust better reflected the common practice of aging parents to transfer assets into joint accounts with children to allow their children to assist them in managing their finances.
Although Mr. Justice Rothstein held that the trial judge in Pecore had erred in applying the presumption of advancement, he upheld the result on the basis that the trial judge’s findings of fact rebutted the presumption of resulting trust.
Madam Justice Abella agreed with the result in Pecore, and dissented in Marsden Estate. She wrote in Pecore that the presumption of advancement was based on the natural affection of a parent for a child, and not just on the parent’s legal obligations of financial support. She would have applied the presumption of advancement to gratuitous transfers from parents to adult children, as well as to minor children.
The Supreme Court of Canada unanimously agreed that there is no distinction between a transfer from a father to a child and a mother to a child. Accordingly, it is clear that the presumption of advancement applies to a transfer from a mother to a minor child.
In my third post in this series, I will write about the question of whether a transfer into a joint account is testamentary in nature (will-like) when the person making the transfer intends to keep control of the account until his or her death, with the survivor then taking the proceeds of the account by right-of-survivorship.