The Supreme Court of Canada Relaxes the Rule in Shephard v. Cartwright

The Supreme Court of Canada recently released two judgments on the issue of whether, on the death of one joint account owner who contributed all of the funds into the joint account, the surviving account owner gets to keep the funds, or must hand them over to the deceased’s estate. In each of Pecore v. Pecore, 2007 SCC 17, and Madsen Estate v. Saylor, 2007 SCC 18, a father contributed the funds to joint account with one of his daughters. In Pecore, the daughter was entitled to keep the funds. But in Madsen Estate, the daughter had to return the funds to her father’s estate.

I have summarized these cases in my first post. In my second, I wrote about the majority’s decision that an adult child who receives assets gratuitously from his or her parent has the burden of persuasion to convince a court that the parent intended to make a gift. In my third post, I discussed the Court’s decision that joint accounts are not testamentary, and the forms creating joint accounts do not need to comply with legislation governing the form of wills.

In this post, I discuss the issue of whether courts may consider what the person who has transferred assets to another gratuitously said or did after the transfer.

In these disputes between a surviving joint account owner, and the deceased’s estate, the court attempts to discover what the deceased’s intention at the time he or she transferred funds into the joint accounts. When a parent intending to make a gift transfers funds into a joint account with a child, the parent has made the gift at the time of the transfer. Once the gift is made, the parent is not entitled to take back the gift if the parent changes his or her mind. (Although, as a practical matter, if it is a joint account, the parent might be able to simply withdraw the funds, defeating the gift.)

Now, supposing two years after a mother has transferred her investments into a joint account with her son, she tells her friend that she set up the joint accounts to allow her son to assist her in managing the investments, but she did not intend to make a gift. Should a court consider this conversation after the mother has died? Perhaps, the mother intended to make a gift at the time of the transfer, but changed her mind.

What if, on the other hand, the mother tells her friend two years after the transfer that she did intend to make a gift? The statement is against the mother’s self-interest, and might be considered more reliable.

Some courts, including the House of Lords in Shephard v. Cartwright, [1955] A.C. 431, have said that in trying to find out what someone intended, the court may only consider what he or she says or does before the transfer or at about the same time as the transfer, unless what he or she says or does is against his or her own interest. Under this rule, if the mother in our example says two years after the transfer that she did not intend to make a gift, her statement would not be admissible. But, if she said that she did intend a gift she transferred the funds, this statement would be admissible even if she made it two years after the transfer.

In Pecore, Mr. Justice Rothstein held that statements or other acts showing intention were admissible even if they were made after the transfer. Such statements are admissible if they are relevant to deciding what the person making the transfer intended when the transfer was made. The trial judge can then assess the reliability and persuasiveness of the evidence.

Accordingly, the Supreme Court of Canada has relaxed the stricter rule of evidence prohibiting trial courts from even considering potentially self-serving statements of intention made after the transfer. Instead, the trial judge may hear and consider such evidence, although it might not carry as much weight as a statement made close in time to the transfer.

In my fifth post in this series, I will write about the Court’s discuss of the evidentiary value of the terms of the joint account documents.