Norman v. Watch Tower Bible and Tract Society of Canada

In Norman v. Watch TowerBible and Tract Society of Canada, 2013 BCSC 2099, Madam Justice Warren considered whether funds that were given to a charity under an agreement by which the donors could have the funds returned was testamentary in nature, requiring that the agreement by signed and witnessed as a will to be effective.

During their lifetimes, Lloyd and Lily Norman made loans and gifts to support their local congregation of Jehovah Witnesses in Abbotsford, B.C. as well as to the national charity Watch Tower Bible and Tract Society of Canada.

On July 3, 2001, they signed a “Conditional Donation Agreement,” which read as follows:

The Watch Tower Bible and Tract Society of Canada (SOCIETY) acknowledges the receipt of a voluntary conditional donation in the amount of $200,000.00 … (hereinafter called FUNDS) to be held for the use and benefit of SOCIETY for the purpose of advancing the work of Jehovah’s Witnesses of preaching the good news about Jehovah’s Kingdom according to the judgment and sole discretion of the SOCIETY. The initial voluntary conditional donation is accepted from the following DONOR(S):  Lloyd E. and Lily Norman …

Any future funds advanced will be accepted by the SOCIETY and held according to this agreement if the DONOR(S) so indicates in a letter sent with any future funds.

DONOR(S) may personally request in writing the refund of all or any part of the FUNDS from the SOCIETY and such request shall be honoured. No request for a refund may be made by a power of attorney, an estate, or legal representative. The SOCIETY shall, however, in its sole discretion, consider refund requests from such parties, particularly if any financial need is being experienced by any who are DONORS and keeping in mind the best interests of all concerned. The total sums refunded shall not exceed the total of FUNDS.

After the death of all DONORS, the remainder interest that may exist in the balance of FUNDS held by the SOCIETY according to this agreement shall be in SOCIETY.

Pursuant to the agreement, they contributed $310,000, some of which, $60,000 was made into outright gifts for which they received tax receipts.

Following Lloyd Norman’s death, his wife having predeceased him, his administrator, Dana Norman brought a claim on behalf of Lloyd Norman’s estate seeking payment of the $250,000 (being the difference between the $310,000 contributed and the $60,000 that had been converted to outright gifts) from the charity to the estate. The basis of his claim was that because Lloyd and Lily Norman could compel the charity to return the funds during their lifetimes, the agreement was testamentary in nature, dependant on their deaths for its vigour and effect. If so, then as a testamentary gift, the agreement must meet the formal signing and witnessing requirement in the Wills Act to be effective. In this case, it was not witnessed and was not valid in British Columbia as a will.

Madam Justice Warren summarized the factors the courts consider in deciding whether a gift is testamentary as follows:

[23]         The BC Court of Appeal in Wonnacott [ v. Loewen (1990), 44 B.C.L.R. (2d) 23] went on to cite with approval several Canadian decisions. From that analysis, the following principles emerge:

·       The question of whether a disposition is or is not testamentary depends upon the intention of the maker (para. 19).

·       The intention of the maker is a question of fact. In determining the intention, the court is not restricted to the wording of the document alone, but can and should consider extrinsic evidence relevant to the transaction (para. 20).

·       If the document is not intended to have any operation until the maker’s death, it is testamentary (para. 19).

·       If the document is intended to have and does have the effect of transferring some interest in the property or of setting up a trust thereof in praesenti, it is not testamentary (para. 19).

·       The reservation of a right to revoke the transfer or bring a trust to a close does not necessarily have the effect of making the document testamentary (para. 19).

·       Cases where documents are held to be testamentary often include the following factual elements: 1) no consideration passes; 2) the document has no immediate effect; 3) the document is revocable; and 4) the position of the donor and donee does not immediately change (para. 21).

 [24]         Other relevant principles drawn from the authorities relied upon by the parties include the following:

·       Even where an intended disposition is revocable by the maker or where enjoyment of it is postponed until the death of the maker, if, at the time of its execution, the document is legally effective to pass some immediate interest in the property, no matter how slight, the transaction will not be classified as testamentary:  James MacKenzie, Feeney’s Canadian Law of Wills, 4th ed. (Markham, ON: LexisNexis Canada Inc., 2000), para. 1.20.

·       The level of control the donor exercises over the property during his or her lifetime is a factor to be considered in determining whether a disposition is inter vivos or testamentary and the more control the donor exercises, the more likely the disposition will be considered testamentary:  MacKenzie, paras. 1.25 to 1.27.

·       However, the central question is whether the maker of the document intended the document to pass some immediate interest or whether the maker intended the document to have no effect until his death. The degree of control the donor retains over the property during his or her lifetime is relevant to ascertaining that intention. However, if it is clear that the document is intended to have immediate effect it is not testamentary even if the donor retains control, such as the ability to call for the return of the property during his or her lifetime:  Mordo [v. Nitting, 2006 BCSC 1761], para. 335.

Madam Justice Warren found that the gift was not testamentary but took effect during the Normans’ lifetimes, and was not dependant on their death for its vigour and effect. The charity had the right to use the funds. The fact that Lloyd and Lily Norman could call for the return of funds made the gift subject to a condition, but that did not alter the fact that the funds became the property of the charity immediately.

She wrote at paragraphs 37, 38 and 39:

[37]         The next question is whether the Conditional Donation Agreement took immediate effect. In my view, it is clear from the Conditional Donation Agreement itself that it had vigour and effect upon execution. The Conditional Donation Agreement, once executed, governed the relationship between the parties with respect to the Conditional Donations. The positions of the parties immediately changed.

[38]         On the signing of the Conditional Donation Agreement, the defendant obtained both an immediate and future interest in the funds. The defendant already had physical possession of, and at least legal title to, the initial $200,000, but the terms upon which the defendant held those funds and any future contributions were settled with the signing of the Conditional Donation Agreement. The defendant acquired the immediate right to use the funds:  the Conditional Donation Agreement expressly states that the funds are “to be held for the use and benefit of [the defendant] for the purpose of advancing the work of Jehovah’s Witnesses of preaching the good news about Jehovah’s Kingdom according to the judgment and sole discretion of the [defendant]”. Further, as would be the case if the money was in a joint account, the defendant received an unrestricted future interest when the condition was cleared upon Mr. Norman’s death. The Supreme Court of Canada in Pecore v. Pecore, 2007 SCC 17, at paras. 48 and 50, held that the gift of the right of survivorship is inter vivos in nature and not testamentary.

[39]         The Conditional Donation Agreement changed the position of the Normans in that upon its execution they were bound by its terms. They gave up the funds and, unless they requested a refund of them in accordance with the terms of that agreement, nothing would change on their deaths. The ultimate disposition did not depend on the Normans’ deaths but rather on their decision not to request a full refund during their lifetime.

The result is that the Watch Tower Bible and Tract Society of Canada are entitled to retain the full amount of the donations Lloyd and Lily Norman made to it.

[This decision has been upheld by the Court of Appeal. You can read the decision at 2014 BCCA 277.]

Supreme Court of Canada Reaffirms Purchase Money Resulting Trust

As set out by Mr. Justice Rothstein in Nishi v. RascalTrucking Ltd., 2013 SCC 33:

[1]                              A purchase money resulting trust arises when a person advances funds to contribute to the purchase price of property, but does not take legal title to that property. Where the person advancing the funds is unrelated to the person taking title, the law presumes that the parties intended for the person who advanced the funds to hold a beneficial interest in the property in proportion to that person’s contribution. This is called the presumption of resulting trust. 

 [2]                              The presumption can be rebutted by evidence that at the time of the contribution, the person making the contribution intended to make a gift to the person taking title. While rebutting the presumption requires evidence of the intention of the person who advanced the funds at the time of the advance, after the fact evidence can be admitted so long as the trier of fact is careful to consider the possibility of self-serving changes in intention over time

I should add that the presumption often applies to transfers among related persons as well, such as a parent to an adult child.

In Nishi, the transfer of funds was from a company, Rascal Trucking Ltd. which I will refer to as “Rascal” to Edward Nishi to assist Mr. Nishi in purchasing lands in Nanaimo, British Columbia, that Rascal were sold in a foreclosure proceeding.

Rascal had leased the lands from Kismet Enterprises Ltd. (“Kismet”), and operated a topsoil processing facility. After complaints, the City of Nanaimo removed the topsoil and added it to the tax account. The amount was $110,679.74. Although under the lease, Rascal was required to indemnify Kismet for the costs of removal but did not.

Kismet stopped paying its mortgage, and the lender started foreclosure proceedings. Mr. Nishi bought the land in those proceedings in 2001.

It is noteworthy that the principal of Rascal, Hans Heringa, and the principal of Kismet, Cidalia Plavetic, were friends. Mr. Nishi and Ms. Plavetic were in a common law relationship.

Before Rascal contributed funds to the purchase, Mr. Heringa sent a fax to Mr. Nishi offering $85,000 cash and payment on a mortgage of $25,000, and requesting a second mortgage on the lands, and that Rascal would have the use and eventual ownership of a portion of the lands. When that proposal was not accepted, Mr. Heringa sent another fax stating that he would provide $85,000 unconditionally. Ultimately, Rascal contributed $110,679.74 (the exact amount of the liability). Mr. Nishi purchased the lands for $237,500.

Years later, in 2008, Rascal sued Mr. Nishi claiming that Rascal was entitled to a half interest in the property. One of the arguments Rascal made was that there was an agreement that Rascal would receive an interest in the lands. Another argument was that it was entitled to an interest on the basis of its financial contributions, and that the doctrine of resulting trust applied. Finally, Rascal argued that Mr. Nishi would be unjustly enriched if he were entitled to retain Rascal’s contributions and the whole interest in the lands.

In the Supreme Court of British Columbia, the trial found that there was no contract, nor a resulting trust. Rascal did not intend to have a beneficial interest in the land when it advanced the funds. The trial judge also rejected the claim in unjust enrichment. Rascal had paid the same amount that it would have been required to pay to indemnify Kismet under the lease for the cost of removal of the top soil

The Court of Appeal reversed, and found that the resulting trust applied, and that Mr. Nishi had not met the burden of proving that the funds were a gift. This was based in part on the trial judge’s statement in his reasons for judgment that “there was no issue of a gift.”

In the Supreme Court of Canada, one of the arguments made on behalf of Mr. Nishi was that the purchase money resulting trust should be abandoned in favour of an unjust enrichment analysis. The argument is essentially that the purchase money resulting trust may be subsumed under unjust enrichment, but unjust enrichment is a more flexible doctrine. Mr. Justice Rothstein rejected Mr. Nishi’s argument that purchase money resulting trust should be abandoned. He wrote:

[28]                          Mr. Nishi’s third and fourth arguments can be considered together. In essence, Mr. Nishi argues that the doctrine of unjust enrichment is preferable because of its flexibility in terms of factors to be considered, overall focus on justice between the parties and broader remedial options. However, desire for flexibility does not constitute a compelling reason for departing from the unanimous decision of this Court in Kerr [v. Baranow, 2011 SCC 10] which was issued just two years ago. While flexibility is no doubt desirable in certain areas of the law, the purchase money resulting trust provides certainty and predictability because it relies on a clear rule for determining who holds the beneficial interest in a property. Absent strong dissenting opinions in this Court, contrary decisions in provincial appellate courts or significant negative academic commentary that would justify disturbing such a settled area of the law, there is no reason to abandon the purchase money resulting trust.

But the Supreme Court of Canada did agree with Mr. Nishi’s position that the trial judge was right in finding that the presumption of resulting trust had been rebutted. The trial judge found that when Rascal contributed the funds, Mr. Heringa did not intend for Rascal to have a beneficial interest in the lands. This is reflected in the second fax. In law, “the absence of intention to create a beneficial interest for the transferor” is the same thing as a gift.

The trial judge’s statement that “there was no issue of a gift,” was made in a different context. As explained by Mr. Justice Rothstein:

[39]                          The trial judge’s comment that the there was “no issue of a gift” was made in the context of reviewing Mr. Nishi and Ms. Plavetic’s perspective on the purpose of the payment:
 

In this case, there is no issue of a gift. Neither Mr. Nishi nor Ms. Plavetic considered the plaintiff’s contribution to be a gift. [para. 42]

 Mr. Nishi and Ms. Plavetic did not see the payment as a gift, because as the trial judge went on to describe, Rascal acknowledged its responsibility for a debt to Kismet related to the tax arrears arising from Rascal’s topsoil operation. However, it made no sense for Rascal to make that payment directly to Kismet since Kismet was subject to other liabilities and was essentially defunct. If Rascal had made the payment to Kismet, it would not have assisted Mr. Heringa’s friends to obtain title to the property. Making the contribution to the purchase price, therefore, enabled Rascal to live up to its moral commitment in a way that practically benefited Mr. Heringa’s friends. It also left open the possibility that in the future they might agree to a second mortgage or a transfer of a portion of the property to Rascal. 

 [40]                          Indeed, Mr. Heringa’s instructions to his staff on payment of his contribution towards the mortgage on the property refer to the amount of the tax arrears ($110,679.74) down to the penny. The necessary implication is that Mr. Heringa viewed the payments as connected with that moral obligation. If Mr. Heringa’s intention at that time was for Rascal to take a beneficial interest in the property, the moral obligation would not have been fulfilled since Rascal would have used the payment to obtain a corresponding interest in the land and not to make good on its moral obligation. In other words, for these parties, one payment cannot be used both to discharge the moral obligation and to obtain a beneficial interest in the land. The two intentions are incompatible.

In the result, Rascal is not entitled to a beneficial interest in the lands.

When is a Gift Not a Gift?

Law can be subtle. The same word can mean different things in different contexts.

The National Foundation for Christian Leadership (“NFCL”) is a registered as a charity in Canada that provides bursaries and scholarships to students in Christian universities. Those who made donations received charitable tax receipts, which they could use—or as it turned out, in some cases, thought they could use—to obtain charitable tax credits.

Parents or other family members or friends of students attending Christian universities provided donations. Donors could not direct that their donations be used to fund a bursary or scholarship for a specific student, but as found set out by the Federal Court of Appeal in Coleman v. HerMajesty the Queen,

[3]               Under the program administered by NFCL, nearly all students who solicited “donations” received bursaries for the expenses related to their education at TWU or at other Christian post-secondary institutions in an amount equal to approximately 80% of the lesser of students’ eligible expenses and the funds that they had solicited. Some students were awarded scholarships equal to 100% of the lesser of their eligible expenses and the “donations” to NFCL that they had solicited. The value of a student’s bursary or scholarship could not exceed the amount of the solicited “donations”. 

 [4]               Although a “donation” could not be earmarked by a “donor” for a particular student, the Judge found on the basis of NFCL’s pamphlets that the Appellants either knew or ought to have known that, if they made a “donation” to NFCL, their children and grandchild would receive a bursary or scholarship that would defray the expenses of their education at TWU.

The Federal Court of Appeal, upheld the Tax Court of Canada’s decision that a number of these donations charitable tax credits for which the Minister of National Revenue had disallowed were not “gifts.” For the purpose of qualifying for a charitable tax credit, a “gift” is “is a gratuitous transfer of property owned by the donor in return for which no benefit flows to the donor.”

Justice Campbell Miller, in the Tax Court of Canada, found that the donations were not truly gratuitous transfers with no benefits flowing to the donors. Although the donors could not directly control how their funds were used, there was a strong correlation between the donations and receipt by those students who solicited the donations. Parents donating funds knew that their children would receive bursaries or scholarships because of the donations. Justice Miller found that if the children had not received financial support from NFCL, the parents would have otherwise paid those amounts.

Ken and Monica Neville had donated $6250 to NFCL. They received a tax receipt. Their daughter, who attended Trinity Western University, received $6408 in scholarships from NFCL.

After they were denied charitable tax credits for their donations, they sued NFCL, seeking a return of the funds they donated.

In Neville v. National Foundation for Christian Leadership, 2013 BCSC 183, Associate Chief Justice Cullen considered whether the donations were “gifts” at common law. In finding that they were, he cited a Supreme Court of Canada case setting out the characteristics of a gift:

[25]         In Read v. Rayner, [1943] 2 D.L.R. 225 at 231 (P.E.I.S.C.), aff’d [1943] 4 D.L.R. 803 (S.C.C.), Arsenault J. held as follows:

What is a gift?
 Britton, in his treatise of gifts (Lib. 11. C3) gives the following definition:

“A gift is an act whereby anything is voluntarily transferred from the true possessor to another person, with the full intention that the thing shall not return to the donor, and with full intention on the part of the receiver to retain the thing entirely as his own without restoring it to the giver. For the gift cannot be properly made if the thing given does not so belong to the receiver, that the two rights, of property and of possession, are united in his person, so that the gift cannot be revoked by the donor, or made void by another, in whom the lawful property is vested.”

 Blackstone [Book II, c. 30, p. 441] says: “A true and proper gift or grant is always accompanied with the delivery of possession and takes effect immediately.” 

In the leading case of Cochrane v. Moore (1890), 25 Q.B.D. 57, at p. 76, Lord Esher M.R., gives the definition of a gift as follows:

“It is a transaction consisting of two contemporaneous acts, which at once complete the transaction, so that there is nothing more to be done by either party. The act done by one is that he gives; the act done by the other is that he accepts. These contemporaneous acts being done, neither party has anything more to do.”

The essential elements of a gift then, according to these definitions, are that one gives, that there is delivery of the gift and that the person to whom the gift has been made accepts.

 [26]         There is really no doubt based on the evidence adduced before me that the donations were gifts in the sense that “there is a delivery of the gift and ... the person to whom the gift has been made accepts”.  I do not understand either party to contest that proposition.

Mr. and Mrs. Neville argued that because they did not get tax credits, the purpose of their donations was not fulfilled, thereby vitiating their gifts. Associate Chief Justice Cullen did not agree. The purpose of the gifts was to fund scholarships and bursaries, and NFCL carried this out. The charity did what the donors contemplated. The donors may have been motivated by their desire for tax credits, but that was not the purpose of the donations. The tax authority’s treatment of the donations does not vitiate the gifts.

Nor did Chief Justice Cullen accept Mr. and Mrs. Neville’s submission that the donations were conditional upon their receipt of tax credits. There was no evidence that at the time they made the donations that they attached any conditions. Once they made an absolute gift, they cannot then attach trust conditions to it.

In the result, NFCL is entitled to keep the donations they received from Mr. and Mrs. Neville. Although the donations made by Mr. and Mrs. Neville were not “gifts” in the sense that they did not receive any benefit in returned, as required to qualify for charitable tax credits, they were “gifts” at common law in the sense that they were transfers of property that the recipient is entitled to keep.  

Stewart v. McLean

In British Columbia, if you act as an attorney under a power of attorney, you have a fiduciary duty (or duty of loyalty) to the person who appointed you, and on whose behalf you are acting. But the mere fact that someone makes a power of attorney does not in-and-of-itself make the person named as the attorney a fiduciary.

This issue is discussed in a Supreme Court of British Columbia decision released last January. The case is Stewart v. McLean, 2010 BCSC 64.

Mona Stewart sued her brother, Donald McLean, his wife, and his two children. Her mother, Ellen McLean, had transferred her house into a joint tenancy with her brother, Donald McLean, she had forgiven a $50,000 debt he owed to her, and she had given each of Donald McLean, his wife and two children $70,000.

After Ellen McLean’s death on February 4, 2005, Mona Steward claimed that her brother had unduly influenced their mother to benefit his family. She also argued that he and his family held the benefits on a resulting trust for Ellen McLean’s estate.

Mr. Justice Punnett rejected Mona Stewart’s claims, and held that Ellen Stewart had freely made valid gifts to her son and son’s family.

A key factor in this decision was that when Mona Stewart and Donald McLean’s uncle Hilarious West died, he had left most of his wealth to Mona Stewart and her children. Donald McLean unsuccessfully sought to have his uncle’s will declared invalid in Alberta.

Mr. Justice Punnett found that Ellen McLean had conferred substantial benefits on her son and his family in order to balance the benefits Mona Stewart received from her uncle.

In finding that there was no undue influence, Mr. Justice Punnett first considered whether there was a presumption that arose that Donald McLean unduly influenced his mother, by virtue either that Ellen McLean had appointed her son as an attorney under a power of attorney, or that their relationship was one of dominance.

Ellen McLean had made a power of attorney, in which she named her son as her attorney. But she never delivered it to him, and he did not exercise it. Accordingly, Mr. Justice Punnett found that the power of attorney did not give rise to a fiduciary duty in the circumstances.

Mr. Justice Punnett also found that Donald McLean was not in a position to dominate his mother. He wrote:

[87] I find that the deceased, up until her death, was mentally acute, independent, and strong-willed. There is no evidence that she was vulnerable in her relationship with her son nor that he controlled her in any way. She was not dependent on him. While she relied upon him to take her to appointments and stores and to assist around her home, had he been unable to do so, she was capable of making alternate arrangements as evidenced by the various third parties she hired to attend to matters that were beyond her abilities.

[88] Because of the Deceased’s independence and strong-will, Donald would have been unable to exercise any power over his mother. Even if he had some discretion or power, he would not have been able to unilaterally exercise it. I find that the relationship between Donald and his mother was not a fiduciary relationship.

Mr. Justice Punnett further held that if a presumption of undue influence arose, it had been rebutted. Ellen McLean had received independent advice from a lawyer when she transferred her house into a joint tenancy with her son, and from her financial advisor when she made the $70,000 gifts to each of her son, his wife and their children.

Mona Stewart also sought to rely on the presumption of resulting trust. She argued that because her mother made the transfer of title to the house into a joint tenancy, the cash to Donald McLean and his family, and the forgiveness of debt were all made gratuitously, there is a presumption the Donald McLean and his family held the assets they received in trust for his mother’s estate.

Mr. Justice Punnett agreed that the presumption of resulting trust arose, but found that it had been rebutted by the evidence that Ellen McLean had intended to make gifts.

Mr. Justice Punnett found that there was no basis for Mona Stewart’s allegations, in particular her allegations of undue influence. He wrote:

[120] The plaintiff’s pursuit of this lawsuit in light of the facts and her complete lack of evidence appears to have been motivated by greed and retaliation directed towards her brother for opposing probate of their late uncle’s will. It is one thing to pursue litigation based on suspicious conduct grounded in facts, which may or may not be accepted by the trier of fact; it is another to pursue it and provide no substantive evidence in support. Her allegations were unfounded and her motive improper.

The court ordered Mona Stewart to pay the defendant’s costs on a special costs basis. The usually rule in British Columbia lawsuits is that the unsuccessful party must pay costs to the successful party, but these costs generally represent only a portion of the successful party’s legal expenses. The court may award special costs, which approach or equal actual legal expenses, as a way of punishing a party for its conduct in the lawsuit.

Capacity to Make A Gift: Re: Elsie Jones

In British Columbia, if the court finds that someone is incapable of managing their affairs and appoints a committee (in other words, a guardian), there is a presumption that gratuitous transfers made by the incapable person are invalid. This presumption is set out in section 20 of the Patients Property Act. The presumption applies to certain transfers made before the court declares the person incapable.

Section 20 says:

Every gift, grant, alienation, conveyance or transfer of property made by a person who is or becomes a patient is deemed to be fraudulent and void as against the committee if
(a) the gift, grant, alienation, conveyance or transfer is not made for full and valuable consideration actually paid or sufficiently secured to the person, or
(b) the donee, grantee, transferee or person to whom the property was alienated or conveyed had notice at the time of the gift, grant, alienation, conveyance or transfer of the mental condition of the person.

Section 20 creates a presumption, which may be rebutted by evidence of capacity at the time of the transfer.

The Supreme Court of British Columbia recently applied the presumption in section 20 in Re: Elsie Jones, 2009 BCSC 1723.

Elsie Jones has three children: Maureen Ringrose, Ronald Jones and Marvin Jones. In May 2003, Dr. Leslie Sheldon, a geriatric psychiatrist diagnosed her with vascular dementia. In June, 2004, Elsie Jones transferred her home into a joint tenancy with her daughter, Maureen Ringrose. On July 27, 2006, the Supreme Court of British Columbia declared Elsie Jones to be incapable of managing herself or her affairs.

The Canada Trust Company as committee of Elsie Jones’ estate asked the court to decide if the transfer was valid. Elsie Jones’ two sons argued it was not.

Before the transfer, Elsie Jones had made several calls to the police, saying her house had been broken into. She also accused one of her sons of stealing from her, and taking large amounts of money from her investments. The court found that there was no basis for these allegations.

Maureen Ringrose argued if her mother to have understood generally the nature and effect of the transfer, that was sufficient to prove her capacity. Elsie Jones had an experienced lawyer advise her on the transfer. The lawyer believed she had capacity.

Elsie Jones’ sons, on the other hand, argued that Maureen Ringrose needed to prove that their mother had a capacity equivalent to that necessary to make a will. One of the criteria for capacity to make a will is the absence of any delusions that affect the maker’s decisions.

Mr. Justice Savage held that Elsie Jones did not have capacity to make a transfer of her home into a joint tenancy. Maureen Ringrose failed to rebut the presumption of invalidity in section 20 of the Patients Property Act. She transferred the property under delusions that undermined her capacity.

He wrote:

[99] In my opinion, in a case such as this, it makes no sense to say that an inter vivos transfer is valid if the donor “understands” the nature and the effect of the transaction but is under an unfounded or insane delusion that influenced or precipitated the transfer. In other words, in a case where there are unfounded or insane delusions, it is not sufficient for a court to find merely that the donor understands the nature and the effect of the transaction in some abstract sense.

[100] The court must also be satisfied that the donor was not operating under the unfounded or insane delusion at the time. This particularly so when a donor acts late in life to dispose of a substantial amount of their estate: Re: Beaney [1979] 2 All E.R. 595 (Ch.) at 601; Halsbury’s Law of England, 4th ed., Vol. 20(1), at 10-11; see also Re Rogers, (1963) 42 W.W.R. 200, 39 D.L.R. (2d) 141, [1963] B.C.J. No. 133 at para. 31 (C.A.).

[101] While I do not think it necessary for this decision, the observation of Wilson J.A., as he then was, concurred in by Davey J.A., as he then was, in Rogers seems apposite:
30 Having concluded that the testamentary test is the right one to apply, I cannot see that, so far as degree of understanding or capacity is concerned, there is any real difference. I do not think that a man requires any higher or lower degree of capacity to consider his own interest than he needs to consider the interests of other persons. Nor do I think that the degree of capacity required differs in respect to any disposition by gift or otherwise.

[102] In my opinion the evidence adduced falls short of meeting either standard. Firstly, there was a variety of delusions under which Elsie Jones was operating over an extended period of time, both before and after the Transfer. She was of the view that persons were breaking into her home and stealing things. At various times she accused her own children of doing this. Not only Ronald but also Maureen. There is no evidence at all to support this. At various times she called the police over these allegations who attended at her residence both before and after the Transfer.

Joint Account Disputes: The Relevance of Use and Control

On May 3, 2007, the Supreme Court of Canada released reasons for judgment in two disputed cases about joint accounts. The issue the court addressed in each case was whether a surviving joint account owner was entitled to keep the funds in the account on the death of the other joint account owner. In each case the deceased had contributed all of the funds to the accounts. In one case, the court held that the surviving joint account owner was entitled to keep the funds. In the other, the survivor had to return the funds to the deceased’s estate.

This is my sixth post in my series on Pecore v. Pecore, 2007 SCC 17, and Madsen Estate v. Saylor, 2007 SCC 18. In this post, I will summarize Mr. Justice Rothstein’s discussion in Pecore of the relevance of the fact that the deceased’s joint account owner had used and exercised control over the account during his lifetime. In each of these cases, a father transferred funds into joint accounts with his daughter. For convenience, I will refer to the contributor as the father, and the surviving joint account owner as the daughter, but the same principles apply to other relationships.

Mr. Justice Rothstein said that the court may consider whether the father used and controlled the joint account. But, he wrote, such evidence may be of marginal assistance.

He gave three reasons. First, the fact that the father continued to exercise control may reflect the dynamics of the relationship, rather than whether the father intended to make a gift to the daughter. On the other hand, an aging father might transfer funds into a joint account to allow the daughter to manage the funds for him without intending to make a gift.

Secondly, the daughter may leave funds in the account so that the father’s needs are met even if she is entitled to withdraw funds.

Thirdly, the father may intend to give the daughter the right-of-survivorship at the time of the transfer, and still use and control the funds during his lifetime.

In my seventh post in this series, I will discuss the relevance of how the parties have treated the joint accounts for tax purposes.

You can link to one of my previous posts in this series as follows:

In my first post, I summarized the facts of these cases.
In my second post, I wrote about the presumptions of resulting trusts and of advancement.
In my third post, I wrote about how the Court dealt with the issue of whether a gift of a right-of-survivorship is testamentary, requiring compliance with wills legislation.
In my fourth post, I wrote about the Supreme Court of Canada has relaxed the rule against evidence of statement and acts after a transfer has occurred.
In my fifth post, I wrote about the joint account documents.

Joint Account Documents and Disputed Joint Accounts

A father contributes the funds into a joint bank account with his daughter. They sign a joint account agreement with the bank that says that on the death of one joint account owner, the survivor is entitled to withdraw the balance. The father dies. The daughter claims the funds, but either the father’s executor, or the beneficiary of his will claim the daughter holds the funds in trust for the father’s estate. Should the court consider the joint account agreement when deciding who gets the funds?

This is one of the questions the Supreme Court of Canada considered in two recent decisions, and this question is my topic in my fifth in a series of posts on the decisions in Pecore v. Pecore, 2007 SCC 17, and Madsen Estate v. Saylor, 2007 SCC 18.

As I have previously written, in earlier decisions the Supreme Court of Canada has held that the joint account agreement with a bank sets out the rights and obligations between the account holders on the one hand, and the bank on the other. The joint account agreement does not set out the rights and obligations to funds as between the estate of a deceased joint account owner, and the surviving joint account owner.

In Pecore, Mr. Justice Rothstein said that in some circumstances the joint account agreement may provide evidence of whether the person who made the contribution intended for the joint account owner to keep the balance in the account on the contributor’s death. He wrote at paragraph 61,

While I agree that bank documents do not necessarily set out equitable interests in joint accounts, banking documents in modern times may be detailed enough that they provide strong evidence of the intentions of the transferor regarding how the balance in the account should be treated on his or her death: see B. Ziff, Principles of Property Law (4th ed. 2006), at p. 332. Therefore, if there is anything in the bank documents that specifically suggests the transferor’s intent regarding the beneficial interest in the account, I do not think that courts should be barred from considering it. Indeed, the clearer the evidence in the bank documents in question, the more weight that evidence should carry.

It would be difficult to quarrel with the point that the court may consider documents the parties signed when the court tries to find out whether the person contributing the funds intended to make a gift.

On the other hand, in practice, I question how helpful the banking documents will be, or whether the courts should give the joint account agreement much weight. I don’t think I have seen joint account agreements that make a distinction between title to the accounts, and the beneficial interest (the right to the use and enjoyment) in the accounts. I think in practice the bank documents generally say that the survivor is entitled to deal with the account, and withdraw the funds. This does not shed any light on whether the now deceased person who contributed the funds intended the survivor to keep the funds, or for the funds to be distributed according to the deceased’s will.

If the joint account agreement did provide more detail to address this issue, I question whether many people would read and understand the detail. Lawyers are not usually involved in setting up joint accounts, even when the joint accounts involve substantial amounts. I have never been asked to review a joint account agreement before it was signed. In most cases, the contributor is setting up a joint account with a close relative, whom he or she completely trusts. The joint account owners don’t take a great deal of time to read the fine print.

In my next post in this series, I will write about the Supreme Court of Canada’s discussion of the relevance of whether the contributor continued to control the joint account during his lifetime.

If you are interested in reading my previous posts on these two cases, I summarized the facts of these cases in my first post. I discussed the presumption of advancement in my second post. I wrote about how the Court dealt with the issue of whether a gift of a right-of-survivorship is testamentary, requiring compliance with wills legislation in my third post. In my fourth post, I wrote about the Supreme Court of Canada has relaxed the rule against evidence of statement and acts after a transfer has occurred.

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.

Supreme Court of Canada Holds that Joint Accounts Are Not Testamentary

When you make a will, you are creating a document that disposes of your assets on death. Until then, you may deal with your assets as you like. You can sell them, or give them away. You can acquire more. If you change your mind about who will get what on your death, you may change your will. Your will depends on your death for its force and vigour. The gifts in your will are referred to (by lawyers anyway) as testamentary dispositions.

Sometimes the courts find that documents that one might not think of as wills are testamentary. I have written before about a document in which a creditor purported to forgive debts on his death. The court found this document to be testamentary.

So what if a court finds that a document is testamentary?

Each province in Canada has its own rules on what is required to make a valid will. In British Columbia, for example, we have strict requirements that two witnesses sign a will, and on how it is signed. If the court finds a document that is not signed in compliance with the wills legislation, the court may find that the document is invalid.

As I wrote in the first of this series of posts on last week’s Supreme Court of Canada decisions in Pecore v. Pecore, 2007 SCC 17, and Madsen Estate v. Saylor, 2007 SCC 18, in each of these case a father gratuitously transferred funds into joint accounts with a daughter. On the death of the father, the daughter claimed the funds as her own, but the beneficiaries of the parent’s estate claimed ownership.

In the Pecore decision, the daughter met the burden of persuasion that her father intended a gift to her. (I dealt with the presumptions of advancement and resulting trusts in my second post in this series here.)

The majority judgment in the Supreme Court of Canada in Pecore considered whether the joint accounts were testamentary. The argument is that the father, who contributed the funds, exercised control over the funds during his lifetime. He could effectively defeat the interest of his daughter by withdrawing all of the funds during his lifetime. If he intended that his daughter receive the funds at death, then the child’s beneficial interest (the right to use and enjoy the funds) only arose at death. The joint accounts were testamentary in nature, operating just like a will. Because the banking and investment documents creating the accounts didn’t comply with Ontario’s requirements for a valid will, the joint accounts were not a valid method for the father to dispose of the funds to the child at death. That is the argument, but not one that proved successful.

Mr. Justice Rothstein rejected the argument that the joint accounts in Pecore were testamentary. Despite the fact that the father exercised control over the accounts, Mr. Justice Rothstein held that the daughter’s right of survivorship in the accounts (in other words, the right to the funds on her father’s death) arose when the father set up the joint accounts. He transferred a beneficial interest in the accounts when he created them, and not on his death. Therefore, the joint accounts were not testamentary, and did not need to comply with Ontario’s requirements for a valid will.

In my fourth post in this series, I will write about the Supreme Court of Canada’s discussion of whether courts may consider evidence arising of the intentions of the person making the gratuitous transfer arising after the transfer.

The Supreme Court of Canada Abolishes the Presumption of Advancement in Transfers from Parents to Adult Children

In this, my second part of a series on the two recent Supreme Court of Canada cases on joint bank accounts, I discuss how the Court has changed the presumption of advancement. You can read my first post on these two cases, Pecore v. Pecore, 2007 SCC 17, and Madsen Estate v. Saylor, 2007 SCC 18, here.

By way of background, if one person transfers an asset into another person’s name gratuitously, Canadian common law usually presumes that the person who made the transfer did not intend to make a gift. If you give me a one hundred dollar bill, the law presumes that I am holding the hundred dollars in trust for you. This is referred to as a resulting trust.

The presumption of resulting trust is only a presumption. If I give you a hundred dollars on your birthday, inside a card that says happy birthday, you have some pretty good evidence that I was making a gift to you. In that case, the presumption is rebutted.

As with much of the law, there are important exceptions to the presumption of resulting trust. In some circumstances, where the person who made the transfer and the recipient are closely related, there is a presumption of gift. This is called the presumption of advancement. Historically, the presumption of advancement arose in gifts from husbands to wives, and gifts from fathers to children.

If the presumption of resulting trust applies, the recipient must persuade the court that the person who made the transfer intended a gift. But, if the presumption of advancement applies, then the burden of persuasion is on those alleging that there was no gift.

The question of which presumption applies can be significant in estate litigation cases when the person who made the transfer is deceased. If the evidence is evenly balanced, then the presumption will determine who wins.

In Pecore, the trial judge had applied the presumption of advancement to the father’s transfer of investments into joint accounts with his daughter. After finding that the presumption of advancement had not been rebutted, the trial judge held that the daughter was entitled to keep the investments.

In Marsden Estate, the trial judge had applied the presumption of resulting trust to the father’s transfer of investments into joint accounts with his daughter. After finding that the presumption of resulting trust had not been rebutted, the trial judge held that the daughter had to pay the funds in the joint accounts back into her father’s estate.

In the Supreme Court of Canada, Mr. Justice Rothstein, writing for himself and seven other Justices, held that the presumption of advancement only applies to transfers from a parent to a minor child. The presumption of resulting trust applies to transfers from a parent to an adult child.

Mr. Justice Rothstein wrote in Pecore that a parent’s obligation to support a dependant child was the main justification for the presumption of advancement in transfers from a parent to a child. Parents do not have an obligation to support independent adult children. In the case of dependant adult children, Mr. Justice Rothstein was of the view that given the different degrees of dependency, it would create too much uncertainty to apply the presumption of advancement to transfers from parents to dependant adult children.

Mr. Justice Rothstein also reasoned that a presumption of resulting trust better reflected the common practice of aging parents to transfer assets into joint accounts with children to allow their children to assist them in managing their finances.

Although Mr. Justice Rothstein held that the trial judge in Pecore had erred in applying the presumption of advancement, he upheld the result on the basis that the trial judge’s findings of fact rebutted the presumption of resulting trust.

Madam Justice Abella agreed with the result in Pecore, and dissented in Marsden Estate. She wrote in Pecore that the presumption of advancement was based on the natural affection of a parent for a child, and not just on the parent’s legal obligations of financial support. She would have applied the presumption of advancement to gratuitous transfers from parents to adult children, as well as to minor children.

The Supreme Court of Canada unanimously agreed that there is no distinction between a transfer from a father to a child and a mother to a child. Accordingly, it is clear that the presumption of advancement applies to a transfer from a mother to a minor child.

In my third post in this series, I will write about the question of whether a transfer into a joint account is testamentary in nature (will-like) when the person making the transfer intends to keep control of the account until his or her death, with the survivor then taking the proceeds of the account by right-of-survivorship.

Recent Supreme Court of Canada Decisions on Joint Accounts

Paula Pecore

Paula Pecore’s father transferred most of his wealth into joint bank and investment accounts with her. His financial adviser had told him that he could save probate fees and make transferring the investments after his death less expensive and cumbersome.

Paula Pecore’s father also gave her a power of attorney, which would allow her to manage his finances.

After he had transferred his investments into joint accounts with Paula Pecore, his accountant advised him that the transfers of investments could trigger capital gains tax. To avoid an immediate tax, Paula Pecore’s father wrote to the financial institutions advising that he was “the 100% owner of the assets and the funds are not being gifted to Paula.” He continued to pay income tax on all of the income from the investments.

Paula Pecore’s father continued to use and control the joint accounts for the rest of his lifetime. Although Paula Pecore made some withdrawals, she was required by her father to notify him before making any withdrawals.

After he transferred most of his wealth into the joint accounts, Paula Pecore’s father made a will, leaving most of his estate to Paula Pecore and her husband, Michael Pecore. The lawyer who made the will explained that life insurance, pensions and Registered Retirement Income Funds would flow to any designated beneficiaries outside of the estate, instead of as set out in the will. But, the lawyer did not discuss the joint accounts.

When Paula Pecore’s father died, the joint bank and investment accounts were worth about $1 million. He had contributed all of the funds.

Unfortunately, Paula Pecore and her husband, Michael Pecore, divorced. Michael Pecore claimed that Paula was holding the funds from the joint account in trust for the estate. He argued that Paula Pecore’s father had not gifted the funds to her during his lifetime. Although she took title to the accounts by right of survivorship, the beneficial ownership (the right to use and enjoy the funds) fell into Paula Pecore’s father’s estate, to be distributed under his will.

Does Paula Pecore get to keep the million dollar joint accounts? Or must she share them with her ex-husband under her father’s will?

Patricia Brooks

Patricia Brooks’ father transferred his investments into joint bank and investment accounts with her. Patricia Brooks father used and controlled the joint accounts during his lifetime. In fact, Patricia Brooks did not make any withdrawals from the joint account during his lifetime. Her father continued to pay income tax on all of the income from the investments.

Patricia Brooks’ father also gave her a power of attorney, which would allow her to manage his finances.

The value of the joint accounts on Patricia Brooks’ father’s death was about $185,000. He had made all of the contributions to the accounts.

Patricia Brooks claimed the funds in the joint accounts by right-of-survivorship. But, her brother and sister disagreed. Under their father’s will, he directed his estate trustee to divide his estate into two, with one half divided among his three children, and the other half among his eight grandchildren. Patricia Brooks’ siblings claimed that she was holding title to the joint accounts as trustee for their father’s estate.

Is Patricia Brooks entitled to keep the proceeds from the joint accounts for herself?

The Decisions

In Pecore v. Pecore, 2007 SCC 17, released last Thursday, the Supreme Court of Canada unanimously held that Paula Pecore is entitled to keep the funds in the joint accounts.

In Madsen Estate v. Saylor, 2007 SCC 18, also released last Thursday, in a majority decision of eight to one, the Supreme Court of Canada, held that Patricia Brooks must pay the $185,000 in the joint accounts back to her father’s estate, to be distributed in accordance with his will.

Why did the court find in favour of the surviving joint account holder in one case, but not the other? The short answer is that in each case the trial judge made different findings in of fact. In one case, the trial judge’s findings led the Supreme Court of Canada to conclude that Paula Pecore’s father really intended to make a gift of the joint accounts to her. In the other case, the findings led the majority to conclude that Patricia Brooks had not established that her father intended to make a gift of the joint accounts to her. Cases dealing with joint accounts can be finely nuanced, making prediction of the outcome of any case difficult.

These two cases, which (at least superficially) appear so much alike, highlight the continuing problems with joint accounts and other joint tenancies in estate planning. Everyday, people transfer significant wealth into joint accounts with children or others, without fully understanding the implications, or documenting their intentions. In fact, their advisors don't always fully understand the implications either. When disputes occur, it is very difficult for the courts to sort out who is entitled to the benefit of the accounts.

The Supreme Court of Canada took the opportunity in these two cases to clarify some points of law, which I will discuss in future posts.

This is the first part of a series of posts I am writing on these two cases. My next post will be on the Supreme Court of Canada’s discussion of the presumption of advancement.

Undue Influence: A Case Study

Christine Katzensteiner never married, and had no children. She was very close to her niece Maria Nietsche’s four children: Rita Nietsche, Linda Nietsche, Christine Nietsche and Roy Nietsche. In 1988, she made a will leaving most of her estate to be divided into five equal shares among Maria’s four children and another great nephew.

Ms. Katzensteiner had vision problems, and by 1986 she was considered legally blind. She needed help writing cheques and cards. Her health deteriorated further when she developed hip problems and anaemia. At times she became confused. In 1997, she moved out of her home, and into a care facility.

After Ms. Katzensteiner sold her home in 1997 for $270,000, she wrote five cheques to her great nephew Roy totaling about $207,000 between February 5, 1998 and July 6, 2001. Roy used the funds from the largest cheque of $150,000 for a down payment on a house.

Ms. Katzensteiner died at the age of 87 on May 6, 2002.

Roy’s siblings sued Roy, alleging that he had unduly influenced their great aunt to obtain the cheques from her.

To succeed in their claim, Roy’s siblings could either prove that Roy actually exercised undue influence over Ms. Katzensteiner, or that Roy's relationship with her and the circumstances were such that she was vulnerable to undue influence. If the court found that Ms. Katzensteiner was vulnerable, then the court would presume undue influence. But if Roy could show that despite his great aunt’s vulnerability, she acted freely, and spontaneously, the gifts would be upheld.

Madam Justice Allan, in Nietsche v. Nietsche, 2007 BCSC 172, found that the relationship between Roy and his great aunt gave rise to a presumption of undue influence. She considered the following circumstances:

· Roy’s secrecy with respect to those gifts and the purchase of his house;
· The size of the alleged gifts to Roy which represented 2/3 of her estate;
· The fact that he received an additional $37,000 that he did not apparently require for the down payment for his house;
· Roy’s actions in assisting the Testatrix [Ms. Katzensteiner] revoke her Power of Attorney naming Maria and Rita;
· Roy’s purported ability to influence her to keep Rita in the Will;
· Roy’s failure to ensure that the Testatrix received any advice before giving him the cheques;
· Roy’s preparation of a letter purportedly on instructions of the Testatrix asserting that the cheques were gifts;
· Roy’s evidence that he talked his great aunt out of going to a lawyer or notary when she indicated that she wanted to formally document her intention to give him the cheques;
· Roy’s efforts to ensure that his mother and sisters had no access to the Testatrix’s bank statements before and after her death;
· Roy’s steps to cancel the Testatrix’s authorization for Maria to access her bank statements;
· Roy’s failure to advise his sisters and mother that the Testatrix had been taken to hospital days before she died;
· The Testatrix’s poor eye sight and reliance on Roy, in her later years, to fill out all of her cheques for her;
· The Testatrix’s statements after 1998 that she had no money and that Roy had taken her money;
· Roy’s inability to account for the items for which he says he received reimbursement of more than $20,000.

Madam Justice Allan also considered the fact that Roy had more access to Ms. Katzensteiner. He procured groceries and liquor for his great aunt, and he took her out shopping. His great aunt trusted Roy totally. Ms. Katzensteiner may have thought she would benefit from one cheque of $35,000 she gave to Roy, because he had said that he was building a basement suite in his house, which she could use.

After considering all of the evidence the court held that Roy Nietsche had not rebutted the presumption of undue influence arising from his relationship with his great aunt. He is required to repay the sum of $207,000 plus interest and court costs.

Another Joint Tenancy Gone Bad

I entitled one of my earliest posts on this blog “Six Potential Pitfalls Parents Should Consider Before Transferring Real Estate Into a Joint Tenancy with Their Children.” (I have thought of a seventh, but that is not what I am writing about today.) It seems like I am always suggesting to people that they not do it, often after they have received the exact opposite advice from someone else. Sometimes, when I get a phone call from a parent asking me to do the paper work to transfer the title to his or her home to a son or daughter, I send them my article. Usually, after I send my article to the parent, I don’t get instructions to transfer the title. In this way, my article has cost me business. But, I don’t mind.

In a case decided in December, called Schoennagel v. Schoennagel and Gateway Automotive, 2006 BCSC 1830, Daphne Schoennagel did transfer her house into a joint tenancy with her daughter. After her husband died, Daphne Schoennagel moved from 100 Mile House, B.C. to New Westminster, B.C. She bought a house in October 1996, in New Westminster, which she registered in her sole name.

In 1997, her accountant advised her that if she transferred her house into a joint tenancy with her daughter, she could avoid probate fees.

In 2000, Daphne Schoennagel’s daughter prepared a letter for her to sign instructing a lawyer to prepare the documents to transfer the house into a joint tenancy. The lawyer spoke with Daphne Schoennagel on the phone, and then sent her the transfer documents. She signed the transfer before a notary public. The lawyer then had the title transferred into a joint tenancy with her daughter.

Daphne Schoennagel testified that when she transferred the title, she considered that the house was still hers. She agreed to transfer the house into a joint tenancy because at the time, she wanted her daughter to get it on her death. Her daughter did not want to have to pay probate fees on the value of the house on Daphne Schoennagel’s death. (When title is held in a joint tenancy, on the death of one joint tenant, the other acquires title by right of survivorship. In some cases it may not be necessary to probate the will at all, or if it is probated the survivor can avoid paying probate fees in respect of the house.)

Unfortunately, Daphne Schoennagel and her daughter later had a falling out. Daphne Schoennagel sued her daughter for the return of the daughter’s interest in the title to the house. She argued that the transfer should be set aside on the basis of duress, undue influence or as an unconscionable transaction.

Mr. Justice Truscott of the Supreme Court of British Columbia dismissed Daphne Schoennagel’s claim. He found that she intended a gift of an interest in the house when she transferred it into a joint tenancy with her daughter.

Should this have been avoided? I think so. Sometimes people are too quick to blame their advisors when things go wrong. But, in this case, I can’t help but wonder how well Daphne Schoennagel’s advisors served her.

According to the reasons for judgment, Daphne Schoennagel's accountant advised her about avoiding probate fees. How much probate fees would Daphne Schoennagel’s daughter avoid? The answer is about 1.4% of the value of the house on death. It could possibly be more, if there were other assets, and if probate could be avoided altogether. Given the real estate market in British Columbia in recent years, the value is probably substantially higher than the $241,000 Daphne Schoennagel paid for it, but even if it were a worth a million dollars, the probate fees would be $14,000 on that million (assuming there are at least $50,000 of other assets).

What are the other tax implications of the joint tenancy? I don’t have sufficient facts to know for sure, but I am guessing that this house qualifies as Daphne Schoennagel’s principal residence. If she can claim the house as her principal residence until she sells it or dies, any increase in the value of her interest in the house would be sheltered under her principal residence exemption.

On the other hand, her daughter does not live in the house, and probably can’t shelter any of her interest in the house under the principal residence exemption. When she sells her one-half interest in the house, she will have to pay tax on the increase in value of her interest. If it is subject to capital gains tax, one half of the increase of her one-half interest in the house will be taxed as income for the daughter. The amount of tax will depend on the daughter’s marginal income tax rate. The top rate in British Columbia is, last time I checked, about 44%. The income taxes the daughter will eventually have to pay will likely significantly exceed any potential savings of probate fees.

This potential tax problem would likely have arisen even if mother and daughter had not had a falling out. The daughter might have been able to argue that she was holding her interest in the title in trust for her mother all along, and that the full amount of any appreciation in the value of the house should be treated as her mother’s gain. But, I assume that if there were any documents saying that the daughter was holding an interest in trust for Daphne Schoennagel, they would have been brought up at trial, and the outcome would be different.

Did the lawyer or notary public advise Daphne Schoennagel that she would lose control of the house, if she transferred the house into a joint tenancy with her daughter? Did either of them advise her that it could be difficult to get the title back if she changed her mind? Did they advise her of the income tax issues? I don’t know the answers from reading this case. It’s quite possible that they did advise her of the potential pitfalls of transferring the house into a joint tenancy, and that she decided to do so anyway. But too often, people are making decisions to avoid a 1.4% tax without considering the significant implications of what they are doing.

Gifts of Publicly-traded Securities to Charity

There are tax advantages in Canada to donating publicly-traded securities (investments traded on a stock market) to a charity instead of cash, if the donated securities have increased in value.

When you give cash or securities to a Canadian registered charity, you are eligible for a tax credit.

But in the case of a publicly-traded security, you can also take advantage to a change introduced in the February 2006 Federal Budget eliminating capital gains tax on publicly-traded shares donated to a registered charity.

The normal rule is that if you sell securities at a profit, you are required to pay capital gains tax on the increase in value over your cost. Fifty percent of the gain is included in your income for the purpose of calculating your Canadian income tax.

Before the February 2006 Budget, gifts of publicly-traded security to charities were given favourable treatment, including a 25% inclusion rate (instead of 50%). But now, the capital gains tax has been eliminated for qualifying gifts.

Accordingly, you are much better off giving publicly-traded shares to a registered charity, than if you sold the shares--and paid the capital gains tax--and then gave the cash proceeds to the charity.

Some Latin: Donatio Mortis Causa

The Latin phrase “donatio mortis causa” refers to a gift made by a person in his or her lifetime in contemplation of death with the intention that the gift does not became fully effective until he or she dies. For this concept to apply, the person making a gift must deliver it to the beneficiary, must do so in contemplation of death, and the gift is made in circumstances where it is apparent that it goes back to the person making the gift if he or she recovers.

The concept of donatio mortis causa is derived from Roman law, but is a part of our British Columbia common law. It is the kind of thing a lawyer learns in law school, and then stores it in the back of his or her mind as an interesting tidbit of information with little practical use. It is not a good estate planning technique. But every once in a while these old Latin phrases crop up in a modern case.

Kathryn Cripps died in Vancouver on December 9, 1998. She did not have any close relatives when she died. Nor had she made a will. She did have two close friends, Sally and Arthur Costiniuk, who had known her for over thirty years, and had assisted her with personal and household chores.

About a month before she died, Ms. Cripps gave Mr. and Mrs. Costiniuk the keys to her safety deposit boxes, and told them that if she ever needed them back, she would ask for them.

The day before she died, Ms. Cripps told the Costiniuk in the presence of witnesses that she wanted them to have everything. A lawyer was called to make a will, but when he arrived, Ms. Cripps was unconsciousness.

At the time of her death, Ms. Cripps’ safety deposit boxes held some personal papers, five BCRIC shares, stamps with a face value of about $2300, a Registered Retirement Savings Plan ("RRSP") receipt, and a State of Title Certificate to her house.

Mr. Justice Brooke of the Supreme Court of British Columbia found that Ms. Cripps intended to leave everything to Mr. and Mrs. Costiniuk, and that with delivery of the keys to the safety deposit box, she had made a gift donatio mortis causa of the contents of the safety deposit boxes. Accordingly, they were entitled to keep the contents of the safety deposit box including the stamps and the personal papers.

The Costiniuks’ victory was a small one. They were not entitled to the RRSPs referred to in the receipt. Nor were they entitled to Ms. Cripps’ home. Although Ms. Cripps had given them keys to her house several years before her death, she gave Mr. and Mrs. Costiniuk the keys so they could assist her. By giving them the keys the house, she did not give them possession of her house. Nor did delivery of the keys to the safety deposit box with the State of Title Certificate to the house satisfy the requirement that possession of the gift be delivered to the beneficiary.

Mr. and Mrs. Costiniuk appealed the judge’s decision that they were not entitled to Ms. Cripps’ home, but the British Columbia Court of Appeal agreed with the Mr. Justice Brooke’s decision that they were not.

You can read Mr. Justice Brooke's decision in Costinuik v. Official Administrator, 2000 BCSC 1372, here, and the Court of Appeal decision in Costiniuk v. Cripps Estate, 2002 BCCA 125, here.