Saturday, January 10, 2015

Zeligs v. Janes

Contests between siblings following the death of a parent over houses and bank accounts that were held jointly between the parent and one of the parent’s children are all too common. What happens is that a parent who was the sole owner her own house or bank or investment account transfers the house or account into a joint tenancy with one of her children. After death, the child takes the title by right of survivorship, but the other child or children protest. One issue that may arise is whether the parent intended a gift to the child taking an interest in the title, or whether that child holds the house or account in trust for the now deceased parent’s estate. Sometimes, another child (or other beneficiary of the parent’s will) argues that the child benefiting from the joint tenancy exercised undue influence over the parent, or that there is a presumption of undue influence that has not been rebutted.

Zeligs v. Janes, 2015 BCSC 7 is such a case, but with an interesting twist. The result ultimately turned on whether a joint tenancy was severed by the child on title before the parent died.

Dorothy Burnett lived to be 103. When she died, on April 9, 2010, she had two daughters, Barbara Zeligs, and Diana Janes.

Following the death of her husband in 1990, Ms. Burnett lived independently in her house on Knox Road in Vancouver, until July, 2001 when her daughter Diana Janes and Ms. Janes’ husband moved into the Knox Road property to assist her. Ms. Burnett wrote the following note:

July 10, 2001

I Doroty Burnett - wish to stay in my home 1757 Knox Road as long as I live & to make sure I can I asked Diana Janes to move in and stay with me as long as I live, and to be fair to Diana I made her joint owner as long as I live & full owner when I die.

Dorothy Burnett

In 2002, Ms. Burnett met with a lawyer, and transferred the title to her house, which was by far her most valuable asset, into a joint tenancy with her daughter Ms. Janes.

Ms. Burnett’s health declined, and in 2008 she moved into a long-term care facility. Ms. Janes sold the Knox Road property for $2.7 million in January 2010. By that time, Ms. Burnett was incapable of managing her own affairs, and Ms. Janes signed on Ms. Burnett’s behalf using an enduring power of attorney. She initially deposited the net sale proceeds of a little under $1.8 million (after paying off mortgages that had been placed on the title) into a joint bank account, joint with her mother.

But on the day she deposited the funds into the joint account, Ms. Janes took about $700,000 out of the joint account to buy a house, the title to which was registered in her name and that of her husband. Later, while her mother was still alive, she took out the balance of the sale proceeds from the joint account and for investments in her sole name.

Ms. Burnett’s last will, which she signed in 2003, left the residue of her estate to be divided equally between her two daughters.

Barbara Zeligs died after her mother. Ms. Zeligs’ husband, Joseph Zeligs, as her executor claimed that the proceeds of the sale of the Knox Road property belong to Ms.Burnett’s estate, and pursuant to Ms. Burnett’s will, Ms. Zelig’s estate is entitled to half.

There were three main grounds for the challenge. I mentioned two of them at the outset. There is a presumption that when one person transfers title to property gratuitously into the name of another (including into a joint tenancy) the transfer is not a gift, but the person receiving an interest in the title gratuitously, holds the title in trust (known as a resulting trust) for the transferor during her lifetime, and for her estate after death. Mr. Zeligs alleged that the transfer was not a gift, and Ms. Janes received an interest in the title and ultimately the proceeds of sale, subject to a resulting trust for her mother’s estate.

Mr. Zeligs also alleged that because of Ms. Burnett’s age, health problems and dependency on Ms. Janes, there is a presumption that Ms. Janes procured an interest in the by the exercise of undue influence. Where the presumption of undue influence arises, it is not necessary to prove that the beneficiary of the transfer actually exercised undue influence. Rather the burden shifts to the person receiving a benefit to show that it was given voluntarily, often by showing that the person conferring the benefit received independent advice.

Mr. Justice Steeves agreed with Mr. Zeligs that both the presumption of resulting trust and a presumption of undue influence applied to the transfer of the Knox Road property into a joint tenancy, but found that Ms. Janes had rebutted both presumptions. Key evidence included that July 10, 2001 note in which Ms. Burnett expressed her intention that Ms. Janes would be a joint owner during Ms. Burnett’s lifetime and sole owner after her death, and the evidence of Edward Bowes, the lawyer who handled the transfer of the title into the joint tenancy. Mr. Bowes acted for Ms. Burnett, met with her alone, and gave her legal advice. Mr. Bowes considered that she was mentally competent and acting voluntarily when she signed the transfer.

Given Mr. Justice Steeves findings, had the title to the Knox Road house remained in the joint tenancy until Ms. Burnett’s death, Ms. Janes would be entitled to the whole interest in the property by right of survivorship. The nature of a joint tenancy is such that, if one of two owners die, the interest of the first to die comes to an end, and the survivor holds title solely to the exclusion of the estate of deceased former joint owner. This is contrasted with a tenancy in common, where if one co-owner dies, her interest forms part of her estate, to be distributed to the beneficiaries of her will.

It is possible to change a joint tenancy into a tenancy in common, by severing the joint tenancy.

This brings us to the next ground asserted on behalf of Mr. Zeligs, and the one that is key to Mr. Justice Steeve’s decision.

Mr. Zeligs argued that the joint tenancy was severed either when the house was mortgaged (the proceeds of which were used to benefit Ms. Janes and her husband), when it was sold, or when Ms. Janes removed the proceeds from the joint account.

To hold property in a joint tenancy, there must be the four unities of interest, title, time and possession. Either or both joint tenants may sever the joint tenancies by ending the four unities. Mr. Justice Steeves set out the law as follows:

[162]     Beginning with first principles, it is axiomatic that four “unities” must exist before there is a joint tenancy and these describe the “need for virtually perfect equality” as between joint tenants. Any act that destroys one of the unities will bring the joint tenancy to an end. (A. J. McClean, “Severance of Joint Tenancies” (1979) 57 The Canadian Bar Review, 5; Bruce Ziff, Principles of Property Law, 5th ed. (Toronto: Thomson Reuters Canada Ltd., 2010), at pp. 336 and 342).

[163]     First there must be a unity of interest whereby the holdings of each tenant must be equal in nature, extent and duration. The second unity is that the holdings of each tenant must arise from the same instrument or act. This is the unity of title. Third, there is the unity of time that requires that the interests of the joint tenants arise at the same time. Finally, there is the unity of possession which requires that the rights of the tenants relate to the same property (Ziff, at p. 336; citing Sir William Blackstone, Commentaries on the Laws of England, vol. 2 (Chicago: Univ. of Chicago Press, 1979), ed 1979, at pp.180-2).

[164]     The parties agree that the specific test for determining whether a joint tenancy has been severed is set out in Williams v. Hensman (1861), 70 E.R. 862 (applied in Hansen Estate v. Hansen, 2012 ONCA 112). The statement of Vice-Chancellor Wood is often quoted and it refers to what are called the three “Rules” (Williams at 867, cited in Hansen Estate at para. 32):

A joint-tenancy may be severed in three ways: in the first place, an act of any one of the persons interested operating upon his own share may create a severance as to that share. The right of each joint-tenant is a right by survivorship only in the event of no severance having taken place of the share which … is claimed under the jus accrescendi. Each one is at liberty to dispose of his own interest in such manner as to sever it from the joint fund--losing, of course, at the same time, his own right of survivorship. Secondly, a joint-tenancy may be severed by mutual agreement. And, in the third place, there may be a severance by any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common. When the severance depends on an inference of this kind without any express act of severance, it will not suffice to rely on an intention, with respect to the particular share, declared only behind the backs of the other persons interested. You must find in this class of cases a course of dealing by which the shares of all the parties to the contest have been effected, as happened in the cases of Wilson v. Bell [(1843), 5 Ir. Eq. R. 501 (Eng. Eq. Exch.)] and Jackson v. Jackson [(1804), 9 Ves. 591 (Eng. Chancellor)]. …
[emphasis added by Ontario Court of Appeal in Hansen Estate]

In this case, Mr. Justice Steeves found that registering a mortgage did not sever the joint tenancy. In British Columbia, a mortgage is a charge on title, rather than a transfer of title. Nor did selling the Knox Road property and placing the sale proceeds into a joint account sever the joint tenancy. Because Ms. Janes transferred the funds into a joint account, the character of the joint tenancy did not change.

But, when Ms. Janes took the funds out of the joint account, she severed the joint tenancy. By taking the funds and using them to buy a house with her husband, and making investments in her own name, she destroyed the unity of possession. As set out by Mr. Justice Steeves:

[187]     By way of a conclusion, I find that the funds from the sale of the Knox Road property continued to be a joint asset owned by Dorothy and Diana from the point of sale and included the time they were in the joint account of Dorothy and Diana. However, once they were withdrawn from the joint account for the sole benefit of the defendants, to the exclusion of Dorothy, the unity of possession was destroyed and the joint tenancy was severed.

Accordingly, Ms. Burnett’s estate is entitled to half of the sale proceeds of the Knox Road property, to be distributed in accordance with her will (half to Ms. Janes and half to Ms. Zelig’s estate). If Ms. Janes had left the sale proceeds in the joint account until her mother’s death, she would have been entitled to all of the proceeds as the surviving joint tenant.

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