Saturday, July 07, 2012

Using and Enduring Power of Attorney to Sever a Joint Tenancy

Can you use a power of attorney to sever a joint tenancy? This was one of the central issues in the recent decision of the British Columbia Court of Appeal in Houston v. Houston, 2012 BCCA 300.

Dr. George Houston and Angela Houston were married for 34 years. He had four children from a previous marriage and she had two. Each had mirror image wills that left everything to the other. Each provided that if the other had died first, the survivor’s assets would be divided equally among their six children.

In 2005, Dr. George Houston made an enduring power of attorney, appointing Mrs. Houston and his son Dr. James Houston as his attorneys. The power of attorney provided that each could act separately, which means that either Mrs. Houston or Dr. James Houston could use the power of attorney to deal with Dr. James Houston’s assets without involving the other.

In 2008, Dr. George Houston made a new enduring power of attorney in which he appointed his wife as his attorney, and his son Dr. James Houston as an alternate attorney who could act only if Mrs. Houston was unable or unwilling to act.

A few weeks before Dr. George Houston died on May 8, 2009, Dr. James Houston used the first power of attorney to change the title of Dr. George Houston and his wife’s condominium from a joint tenancy to a tenancy in common. If the condominium were held in a joint tenancy, then on the death of either of the two owners, title would pass to the survivor. But because Dr. James Houston used the power of attorney to sever the joint tenancy, Dr. George Houston’s half-interest in the condominium fell into his estate. It was the most valuable asset in the estate.

Although Dr. George Houston’s will provided that his wife would receive his estate, his children have started a law suite under the Wills Variation Act, seeking to vary his will to provide them with a share of his estate. If the condominium has been left in a joint tenancy, it would not be part of his estate, and would not be available to satisfy his children’s Wills Variation Act claim.

Dr. James Houston changed the title in the context of his father’s concerns about the role of one of Mrs. Houston’s children, Ms. Fowler, who had become involved in her mother’s financial and legal affairs. She had said she wanted a power of attorney, and demanded information about her mother and Dr. George Houston’s finances. Her involvement led to the investments being sold and switched to a different financial institution.

Dr. James Houston attempted to make an appointment for his father to see a lawyer, but after Mrs. Houston objected, the meeting did not occur. Dr. George Houston told is son Dr. James Houston and his daughter Mrs. Russell that he was concerned about Ms. Fowler’s influence on her mother, that he wanted their estates to be eventually divided six ways, and that he wanted Dr. James Houston to get some legal advice on his behalf. Dr. James Houston received advice that the only way to secure his father’s estate was to sever the joint tenancy. He did so as a result of this advice, and Mrs. Russell told their father, who was “not unhappy” with the change in title.

After Dr. George Houston’s death, Mrs. Houston challenged the transfer. She argued that the power of attorney under which Dr. James Houston acted had been revoked by the second power of attorney. She also argued that the severance of the joint tenancy was outside the authority of an attorney under an enduring power of attorney. She further argued that in using the power of attorney to sever the joint tenancy, Dr. James Houston was acting in his own self interest contrary to his fiduciary duty, or duty of loyalty.

The Court of Appeal rejected the argument that the second power of attorney revoked the first. There was no provision in the second power of attorney revoking the first, and there was no evidence that Dr. George Houston intended to revoke the first. (It should be noted that this case was decided under the legislation as it stood when the power of attorney was used to sever the joint tenancy. The Power of Attorney Act has since been amended to provide how an enduring power of attorney may be revoked.)

Mrs. Houston’s second argument was that severing a joint tenancy is similar to making a will. They both affect who receive assets after death. It is settled law that an attorney acting under an enduring power of attorney does not have authority to make a will for the person who appointed the attorney.

The Court of Appeal also rejected this argument, holding that the severance of a joint tenancy is not sufficiently similar to making a will for it to beyond the authority of an attorney. Madam Justice Newbury wrote at paragraph 50:

The execution of a will is governed by centuries of case law and by statute because of the obviously solemn nature of a will.  But even if one accepted that certain steps such as the designation of an insurance beneficiary for the carrying out of an estate freeze should be treated with similar solemnity, I would not regard the severance of a joint tenancy as of the same ilk.  A joint tenancy may be severed unilaterally and at any time – it is not connected to or dependent upon the donor’s death to take effect.  As the law now stands, it is not even necessary that the co-owner receive notice of the severance.

The Court of Appeal also rejected the argument that Dr. James Houston engaged in self-dealing in breach of his duties to his father. The trial judge had found that Dr. George Houston had authorized his son to use the power of attorney to preserve his estate to carry out his wishes. Madam Justice Newbury wrote at paragraph 56:

The question of whether James Houston had his father’s authorization or consent to “create an estate” for him was again one of fact.  In this case, the question was a delicate one that depended greatly on the credibility of James Houston and his sister, who also participated in the critical conversation with their father.  The brother and sister were extensively examined and cross-examined about that conversation, and the trial judge realized its importance in the context of the law applicable to fiduciaries.  She found that although the father had not specifically directed his son to use the power of attorney to sever the joint tenancy, he had “clearly instructed Dr. James Houston to use the power of attorney so that his estate would be preserved and his ultimate wishes fulfilled.”  (Para. 89.) The trial judge has not been shown to have been wrong in reaching this conclusion or in finding that James acted so that his father’s wishes would be respected. The trial judge also accepted that before he made the appointment for his father to see Mr. Humphries in the fall of 2008, James had told Dr. Houston Sr. that if he, the father, was happy to “let things go the way they [were]  going”, the Houston children were “happy with that.  We were all well enough off.”  But, he said, “Dad wasn’t.  He said he [had] always been a man of fairness.  He wanted things to go six ways to the family.”  To be blunt, the fear of what Ms. Fowler and Mrs. Houston would do after Dr. Houston Sr.’s death put this plan into serious jeopardy.

The result of this decision is that the severance of the joint tenancy stands, and the half-interest in the condominium falls into Dr. George Houston’s estate, and is subject to the children’s Wills Variation Act claims.

It is important to keep in mind that Dr. George Houston was mentally competent to manage his affairs when his son used the power of attorney to change the title, and that the trial judge found that Dr. James Houston acted in accordance with his father’s wishes. If Dr. George Houston had no longer been competent, and his son had acted on his own, I suspect the outcome of this case would have been different.  

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