Thursday, August 23, 2012

Joint Tenancy Risks: Re: Eng

One of my earliest posts, back in 2005, was about the potential pitfalls of a parent transferring his or her home into a joint tenancy with a child. A parent may have all sorts of reasons for putting her home, or bank account into a joint tenancy with a child. The one I have heard most often is that it will save probate fees. It might, but as I wrote almost seven years ago, the risks to the parent often outweigh any benefit.

I don’t know why when she bought a house in 1976, Ms. Eng put the title into the names of herself and her then 21 year old son Davie Eng as joint tenants. There was some suggestion that she put it into a joint tenancy for estate planning so that her son would receive it on her death. She held other real estate in joint tenancies with her other children. Perhaps it was done in recognition of his contribution to the family through his work in the restaurant she owned. Or she did so in order for him to establish credit.

Whatever the reason, fortunately for Ms. Eng, Master Scarth found after a 10 day hearing in Re Eng, 2012 BCSC 1096, that the evidence did not establish that she made a gift of an interest in the house to Davie Eng, or that she made a gift to him in 2008 when she put $184,000 into a joint account with him.

In October 2010, Davie Eng filed for bankruptcy. His trustee in bankruptcy claimed a half-interest in both the house and in the bank account for the benefit of Mr. Eng’s creditors.

Ms. Eng immigrated to Canada in 1955 from China. She was married, and had four children. Her husband had another child from a previous relationship. In 1972, she moved to Vancouver and opened a restaurant on property she bought in the 60s. Her children, including Davie, worked in the restaurant.

In 1976, she bought a house on Beatrice Street in Vancouver where she and three of her children lived. She put the title into a joint tenancy with Davie Eng. Eventually, two of the children moved out, and Davie Eng continued to live with her. The court found that she made all of the down payment to buy the house, and financed the rest of it with a mortgage. She did not need Davie Eng, who was 21 with no significant assets, on title to qualify for the mortgage.

Over the years Davie Eng made some payments to her, but she said it was only when he had funds, and that it was generally in the neighbourhood of $200 or $300 per month.

Ms. Eng denied that she intended to make a gift of an interest in the house to her son. She testified that she expected all of her children to receive an equal share from the house on her death (her husband had passed away).

Ms. Eng held other real estate with her other children, and shared the proceeds of sales with them, but in each case the other children contributed some funds to the purchase.

After she sold her restaurant, she put $183,000 out of the last installment of the proceeds into a joint bank account with Davie Eng. She denied that she made a gift, and testified that she did put it into a joint account so that her son could assist her with her banking. It should be noted that she spoke very little English, her first language being Cantonese, and that she claimed all of the interest on the account on her income tax.

The trustee in bankruptcy argued that Davie had made contributions to the house and the restaurant. The trustee in bankruptcy maintained that he did not receive his interest in the house or bank accounts gratuitously. He worked for her in the restaurant and finding and dealing with tenants for her on properties she owned. She intended to giver her son a beneficial interest in these assets. He also listed an interest in the house on various credit applications.

But, Master Scarth found that Ms. Eng had paid the purchase price on the house, and that the funds in the joint account came from the sale of the restaurant, which Ms. Eng had also purchased. She had gratuitously put title of the house into joint names with Davie Eng, and put the funds into a joint account with him. Accordingly, there is a presumption of resulting trust, which is a presumption that Ms. Eng was not conferring a gift on Davie Eng. Master Scarth found that the trustee in bankruptcy had not rebutted that presumption.

In the result, although Davie Eng was on title to the house, and was on the joint account, the beneficial interest in the house and the funds in the joint account belong to his mother. The real ownership is with her. Because the trustee in bankruptcy can have no great rights to the assets than Davie Eng, it is not entitled to take half of the joint account, or to have the house sold and half of the proceeds used to pay Davie Eng’s creditors.

Had Master Scarth found that Ms. Eng had intended a gift, the result would have been quite different.

I cannot stress the risk to a parent in a similar situation. Although Ms. Eng successfully resisted the trustee in bankruptcy’s claim, she did so after 10 days of hearings. A ten-day hearing is a very expensive proposition.

I also wonder if a creditor might successfully argue in a similar case that in extending credit to the son, the creditor relied on the fact that the son had a half-interest in the title to the house. Even if as between mother and son, the property belonged to the mother, by putting her son on the title she made a representation to anyone who searched the title that he was an owner of the property. If a creditor relied on the title, could the creditor say she is estopped, in other words prevented because of her representation, from denying her son’s interest?

What if the son had severed the joint tenancy and granted a creditor a mortgage of his half-interest. Then on default, the creditor could apply to court for an order selling the house if the debt were not repaid.

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