Wednesday, February 08, 2017

Court of Appeal Overturns Trial Decision in McKendry v. McKendry

The presumption of resulting trust is a presumption of law that applies when one person gratuitously transfers property to another. The presumption is that the person transferring the property did not intend to make a gift, and that the recipient holds the property in trust for the person who made the transfer. It is a presumption only, and may be rebutted if the recipient proves that the person making the transfer intended to make a gift. The court attempts to determine what the person who made the transfer actually intended, but in many cases this is difficult because the claim is often made after the person who transferred the property died.

The relevant time for determining whether the person who transferred the property intended to make a gift is the time of the transfer.

But what happens if at the time of the transfer, the person who gave an interest in the property did not intend to make a gift, but then later changes her mind, and decides she wishes to make a gift?

I wrote about this in a previous post about the trial decision in McKendry v. McKendry, 2015 BCSC 2433. Because the trial judge’s decision in that case has now been overturned by the British Columbia Court of Appeal in McKendry v. McKendry, 2017 BCCA 48, this issue is worth revisiting.

Mary McKendry transferred title to her home on W 48th Avenue in Vancouver into a joint tenancy with her son, John McKendry, in 2008. The home was worth over $1.9 million when she died on February 23, 2012. There were mortgages registered against the home, which her son had used to finance the purchase of an investment property. Apart from the home, her estate was worth about $465,000.
In addition to her son, she had four daughters who survived her.

Following the transfer, she twice instructed lawyers to draft trust agreements in respect of the home for her son to sign. The first stated that John McKendry held his interest in the title to the home in trust, and on her death he would receive a one-third interest, one of her daughters would receive a one-third interest, and her other three daughters would share a one-third interest. The second trust declaration made in February 2010 provided that on Mary McKendry’s death, each child would be entitled to an equal interest in the home. She signed both trust declarations, but her son did not.

But when she signed her last will, on December 16, 2010, her will contained the following paragraph:

7.         I wish to advise my Trustee/s that I have registered my home civically known as [W. 48th] (hereinafter called the “Home”) in Joint Tenancy with my son, John Alexander McKendry.  My son shall receive the Home subject to the Mortgages registered against [the] Home and shall be responsible for payment of the Mortgages as he was the recipient of the mortgage proceeds.In her will, she left the residue of her estate to her four daughters.

She also signed a letter at the time of her will, stating

I, Mary Alice McKendry, confirm that I wish to cancel any trust agreements or other documents imposing an obligation on my son to share the property I own at [W. 48th] with my other children.  I want my home to be my son’s property on my death absolutely – no strings attached.  I have made this decision after much consideration and I fully understand that this gives my son the majority of my assets.  My house constitutes the majority of my assets.

The issue before the court following her death was whether John McKendry as the surviving joint tenant was entitled to the home, or whether he held it in trust. The trial judge held that he held it in trust. When she transferred title into a joint tenancy with her son, Mary McKendry did not intend to make a gift to him, but rather intended for him to hold title to the home in trust. Accordingly, she had not made a gift. Although she later changed her mind, deciding she wanted John McKendry to have the house as an outright gift, the trial judge held that she needed to do something more to make a gift, such as signing a deed of gift.

John McKendry appealed to the British Columbia Court of Appeal. The Court of Appeal held that he was entitled to the home. Although initially Mary McKendry did not intend to confer a gift when she transferred the home into a joint tenancy with him, when she later decided to make a gift, she did not need to sign a deed of gift, or take any further steps to perfect the gift. It was sufficient for her to make her intention to make a gift clear.

Madam Justice Dickson wrote:

[40]         In January 2008, when Mary gratuitously transferred legal title to the property to John in joint tenancy, she did so with the intent that he hold the property in trust.  The judge found that she intended to retain the entire beneficial interest, including the right of survivorship, for herself and her estate: paras. 124-133. Although John did not sign the trust declaration prepared by counsel, Mary’s intentions were clear and unambiguous.  In consequence, while John held legal title with Mary jointly from January 2008 onward, he held all of the beneficial interest, including survivorship rights, in trust.

[41]         Unless something changed, upon Mary’s death John would have continued to hold legal title to the property only and to hold the beneficial interest in trust.  However, in December 2010 something did change.  As evidenced by the November note and the two-page document prepared by her lawyer, Mary unambiguously renounced her beneficial interest in the right of survivorship in John’s favour should he survive her.  In doing so, she clearly intended to make an immediate inter vivos gift of that incident of the joint tenancy to John.  As explained in Simcoff [v. Simcoff, 2009 MBCA 80] the gift was to whatever remained when Mary died.
 [43]         Given that she had previously transferred legal title to the property to John in joint tenancy, Mary did everything necessary in December 2010 to give her beneficial interest to John, bearing in mind the nature of that interest.  Her intention was made manifest in the signed two-page document her lawyer prepared and no further act of delivery was required because of the existing joint tenancy.  In particular, nothing more would have been gained had Mary executed a deed of gift under seal, given her clear and formally expressed intention. The immediate inter vivos gift was complete and binding.  In my view, Mary’s intention should prevail.

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