Saturday, May 02, 2009

Smith v. Graham

Yesterday, the British Columbia Court of Appeal released reasons for judgment in Smith v. Graham, 2009 BCCA 192.

As I previously wrote, the Supreme Court of British Columbia had ruled that a deceased’s person’s executor could transmit the deceased’s interest in the title to land into the executor’s name, even if the deceased held title as a trustee of an unregistered trust. The original Supreme Court decision was good news for estate planners. It facilitated planning that minimized probate fees payable to the Provincial Government without incurring tax under the Property Transfer Tax Act. I elaborated in my previous post.

I also thought—and still think—the Supreme Court of British Columbia decision made sense, being consistent with both the provisions of the Estate Administration Act, and British Columbia’s Torrens land title system.

But the Registrar of the Land Title Office took a different view, and his view prevailed in the Court of Appeal.

The Registrar’s position is that he is required by section 260(3) of the Land Title Act to be satisfied that the deceased held “good safe holding and marketable title before he could register the title into the executor’s name. What does “good safe holding and marketable title” mean? The Court of Appeal accepted the Registrar’s description as follows:

What the cases suggest is that a good safe holding and marketable title is a title where (1) the possession of the person on title is safe from attack and they cannot be displaced (safe holding) and (2) it is title “which, so far as its antecedents are concerned, may at all times and under all circumstances be forced upon an unwilling purchaser” (marketable). These cases suggest that the question of whether or not a person’s title is ‘doubtful’ is not one of whether there is a strict legal defect in the claimed title but whether there is some issue which would lead a reasonable purchaser to question the title and thus refuse to complete a transaction.

The Court of Appeal held that when the registered owner (now deceased) signed the trust agreement acknowledging that he was holding the land in trust for the trustees of a trust, he no longer had good safe holding and marketable title. Madam Justice Levine wrote at paragraphs 22 and 23:

[22] The Registrar noted, correctly, that the titles transmitted to the respondents from the deceased under the Estate Administration Act and the Trustee Act were subject to all of the interests to which the deceased’s interests were subject at law.

[23] Under the terms of the Deeds of Settlement, the deceased’s titles were not secure, or safe-holding, because they had transferred the property to the Trustees “absolutely … by way of gift” and agreed “at the request of the Trustees to transfer the property to or to the order of the Trustees.” The deceased’s titles were not marketable, because they had agreed not to deal with the property “without the written direction of the Trustees”, and a purchaser seeking to deal with the property who became aware of the terms of the Alter Ego Trusts could not be forced to complete a transaction without resolution of their requirements.
In the result, where the deceased’s held land as trustee of an unregistered trust, it will be necessary for the deceased’s executor or administrator to have the trust registered (which in most if not all cases will trigger property transfer tax).

Are there other implications of this decision?

The Court of Appeal says that the deceased could not force an unwilling purchaser who became aware of the trust to complete the transaction. Why not?

If a purchaser becomes aware of the unregistered trust before taking title, does this affect the purchaser’s title?

Presumably a purchaser could rely on sections 20 and 23 of the Land Title Act. Section 20 (1), for example, says:

(1) Except as against the person making it, an instrument purporting to transfer, charge, deal with or affect land or an estate or interest in land does not operate to pass an estate or interest, either at law or in equity, in the land unless the instrument is registered in compliance with this Act.
But if purchasers are protected by section 20, and are not bound to recognize the unregistered trust, how does the unregistered trust affect the marketability of the title?

Aside from unregistered express trusts, there are other types of trusts such as resulting trusts (where one person contributes property or the funds to purchase property gratuitously to the title holder), and remedial constructive trusts (where the court imposes a trust on the registered owner). If there is a potential for such a claim, does the potential for such claims affect the registered owner’s good safe holding and marketable title?

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