Sunday, January 24, 2010

Turner v. Turner

I have previously written about my concerns about using joint tenancies as an estate plan to transfer houses and other assets to children. Too often this is seen as a low cost, simple way to leave children an inheritance. In many cases people do this without really understanding the consequences of what they are doing.

The problems of using joint tenancies with children are again illustrated in a recent British Columbia case, Turner v. Turner, 2010 BCSC 49.

Luella Turner had three children: Richard Mastel, John Turner, and James Turner. In her later years, she was not close to Richard Mastel. She did not like his wife. In contrast, she had a very close relationship with her youngest son, James Turner, who lived with her until he was 39.

In 1996, she transferred her house into a joint tenancy with James Turner. This came about after she told him she was concerned that Richard’s wife might get her hands on the house, apparently referring to the Wills Variation Act. James Turner, who was a lawyer, told her that she could transfer her house into a joint tenancy, allowing it to pass outside of her estate, avoiding a challenge.

She saw a lawyer, Mr. Johnson, who handled the transfer. He did not testify at trial.

In 2006, after she had remarried, Luella Turner made a new will. In the will she provided that her husband could live in the house for life. If her husband didn’t want to use the house, or on his death, the will directed that the house be sold with the proceeds divided equally between James Turner and John Turner.

Luella Turner died on April 23, 2007. Her husband moved out of the home. James Turner then transferred the title into his sole name as the surviving joint tenant, and sold the house.

John Turner then sued James Turner for his share of the sale proceeds under the will. He alleged that James Turner held the house on a resulting trust for their mother’s estate. Accordingly, the house should pass under the will, not outside of the estate.

Mr. Justice Verhoeven held that James Turner did indeed hold the house on a resulting trust for the estate. The law in British Columbia is that when a parent transfers assets gratuitously to an adult child, there is a presumption that the child holds the assets in trust for the parent and the parent’s estate. This is a presumption only, and may be rebutted if the child can show that the parent intended a gift.

In this case, Mr. Justice Verhoeven found that both Luella Turner and James Turner treated the house as if it were still solely Luella Turner’s property. Although Luella Turner sometimes referred to the house as their house, this was consistent with the fact that James Turner lived with her. When she made her later will in 2006, she treated the house as her own. She told James Turner of her plans to leave the house to both John Turner and himself in the 2006 will, and he expressed disappointment, which is consistent with the view that he recognized that the house was still hers to leave in the will.

Mr. Justice Verhoeven’s comments are instructive of the type of advice Luella Turner should have received, but did not, when transferring the house into a joint tenancy with one of her children:

[89] Mr. Johnson charged no fees for his services. The account was for disbursements only. The defendant denies that Mr. Johnson waived fees as a courtesy to him. From the nature of the file and from the account, I infer that the time spent by Mr Johnson on the matter was very minimal. He met Mrs. Turner only once. He obtained scant information from her, and reviewed no documents.

[90] The four sticky notes, which I must assume to be in the handwriting of Mr. Johnson, appear to indicate that a very brief discussion took place between Mr. Johnson and the deceased about the transfer. They appear to include the words “strictly client’s idea” and to make cryptic reference to the three sons, noting that the oldest son is well off, the second son has received $18,000 and “all wills have said house to Jim” and “Jim being the one who has done everything”. Some parts of the notes are not capable of interpretation.

[91] In fact on the evidence there was only one prior will, the 1976 will.

[92] Even if Mr. Johnson had been available to testify at the trial I could not have given much weight to such scanty records.

[93] There is no reference in the notes relating to any discussion by Mr. Johnson with the deceased concerning the meaning and effect of joint tenancy.

[94] James Turner acknowledges that he did not provide any legal advice to his mother concerning the transaction, other than telling her that by means of putting the property in joint tenancy, a challenge under the Wills Variation Act could be avoided. He discussed no alternative courses of action with her. He says that he was not a wills and estates lawyer and did not know of any alternative courses of action.

[95] He acknowledges that he did not discuss with her anything about what she could or could not do with the property once it was in joint tenancy. He did not tell her that she would have to consult him in future regarding any major decisions about the property. On cross-examination he frankly conceded that while in his mind she “appeared to understand everything” he really could not say that she was fully informed and had a full understanding of the consequences to her of the transaction.

[96] A gift cannot be revoked, whereas a testamentary disposition such as a will can be altered at any time. There is no evidence that this critical difference was explained to Mrs. Turner or that she understood it. Specifically, it was not explained to her that by placing the title in joint tenancy with her son James, she could never change her mind, and that she could no longer deal with the property through her will.

[97] The potential consequences of making a gift of a joint tenancy interest in the property were profound. As a joint tenant, James Turner could have moved for a partition and sale of the property, whereupon Mrs. Turner would have been obliged to purchase his interest in the property, which she was not in a position to do. She had no assets, and minimal income. She could have been forced out of her own home, and would have received only one-half of the sale proceeds. Her share of the proceeds might have been insufficient for her to find alternative accommodation. There is no evidence that any of this was explained to her.

[98] On the defendant’s own evidence, the deceased did not offer any reason for making a gift of the interest in the property to him. There is no evidence for example that he agreed to remain with her or to take care of her in future.

[99] The only clear evidence of the deceased’s motivation for the transfer is that of her concern about a potential claim under the Wills Variation Act.

[100] There was no advice given to her as to how substantial that concern would be in the circumstances. There was no advice as to whether there might be other means to deal with her concern.

[101] As I interpret Mr. Johnson’s file and the circumstances relating to the dealings with Mr. Johnson, the deceased got no meaningful legal advice from Mr. Johnson. Essentially, he simply carried out the transaction as the deceased and James Turner asked.

In the result, JamesTurner is required to share the proceeds of the sale of the house with his brother John Turner.

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