Sunday, April 04, 2021

Petrick (Trustee) v. Petrick

 

I have always urged caution in using joint tenancies as an estate-planning tool for the transfer of wealth from a parent to a child. One of my earliest blog posts, from September 17, 2005 is entitled “Six PotentialPitfalls Parents Should Consider Before Transferring Real Estate Into a JointTenancy with Their Children.” Jointures, including joint bank accounts, appear to be deceptively simple. On the death of a joint owner, the title to the asset passes by right-of-survivorship to the other joint co-owner (or owners). But it is not really that simple. In many cases, there is a question about whether the survivor is really entitled to keep the property or whether it is held in trust for the now deceased co-owner. There may also be unintended consequences of owning property in a joint tenancy. The nuances and risks are illustrated in the case I am about to discuss.

Dena Chilton and her son Rock Petrick purchased a condominium in New Westminster, British Columbia. Ms. Chilton contributed the down payment for the purchase and she lived in the condominium. Mr. Petrick did not live with her. They were both on the mortgage. There was conflicting evidence as to whether Mr. Petrick made any mortgage payments, but Ms. Chilton paid the bulk of the mortgage payments and other expenses associated with the condominium. Mr. Petrick later had financial problems, and Ms. Chilton asked him to transfer his interest in the title to her. He did so in July 2014.

Mr. Petrick went bankrupt, and following his bankruptcy, his trustee in bankruptcy applied to court to set aside the transfer of his half interest to his mother. The trustee in bankruptcy argued that the transfer was a fraudulent conveyance intended to defeat Mr. Petrick’s creditors.

Both Ms. Chilton and Mr. Petrick argued that he never had a beneficial interest in the condominium. That is, although he had an interest in the title, he held it in trust for his mother. There is a presumption of law, referred to as a resulting trust, that if someone pays the purchase price for property, but puts it in the name of another, who did not contribute to the purchase, the other person who received the tittle gratuitously, holds in trust for the person who paid the purchase price. This presumption applies to the interest in the title of a joint tenant who has received his interest gratuitously. Ms. Chilton’s evidence was that she had her son’s name on the condominium as a joint tenant so that on her death, the condominium would pass to him, without the requirement that he obtain a grant of probate of her will.

If in fact Mr. Petrick held his interest in the title in trust for his mother, then the transfer of title to his mother was not a fraudulent conveyance. His creditors would not have been entitled to a half-interest in the condominium if he did not have a beneficial interest in it.

Madam Justice Francis, in Petrick (Trustee) v. Petrick, 2019 BCSC 1319, held that Mr. Petrick did have a beneficial interest in the condominium and set aside the transfer to his mother as a fraudulent conveyance.

In her reasons for judgement, Madam Justice Francis nicely summarized three alternative possible ownership interests that joint tenants may have in property. She wrote at paragraph 40:

[40]         Not all jointly owned property is subject to a true joint tenancy. Pursuant to the Supreme Court of Canada’s decision in Pecore v. Pecore, 2007 SCC 17 [Pecore], property that is held in joint tenancy can give rise to three potential scenarios in terms of the beneficial interests of the title holders:

a)    A true joint tenancy, in which the joint tenants are each owner of the whole. Each enjoys the full benefit of property ownership and the ultimate survivor will enjoy the whole title for him or herself.

b)    A resulting trust, wherein only one joint tenant has any beneficial interest in the property and the other joint tenant, usually a gratuitous transferee, holds title in trust for the other and has no beneficial interest in the property.

c)     A scenario which is sometimes referred to as a “gift of the right of survivorship,” wherein a joint tenant is gratuitously placed on title and has no beneficial entitlement to the property during the lifetime of the donor, but if the donee survives the donor, the donee will receive the entire property by right of survivorship.  In Bergen v. Bergen, 2013 BCCA 492 at para. 37 [Bergen], Newbury J.A. described a gift of the right of survivorship in a joint account as “an immediate gift of a joint interest consisting of whatever balance exists in the account on the transferor’s death, assuming he or she dies first.”

Madam Justice Frances found that Ms. Chilton and Mr. Petrick were true joint tenants. She found that he did not receive his interest gratuitously. Because he was a co-borrower under the mortgage, he took a financial risk if the mortgage went into default. The presumption of resulting trust only applies when someone on title has acquired his interest gratuitously. The contributions of the co-owners for property do not have to be equal to avoid the presumption of resulting trust. Pledging credit is a contribution, even if Ms. Chilton could have qualified for a mortgage without Mr. Petrick being a co-borrower. As set out in Madam Justice Francis' reasons:

[65]         Ms. Chilton deposed that Mr. Petrick was not required to pledge his credit in order for her to obtain mortgage financing on the Property and that “he was added on the mortgage simply because he was going to be registered on title.”

[66]         I am not persuaded that simply because Ms. Chilton may have been able to purchase the property without Mr. Petrick pledging his credit, Mr. Petrick did not give up something of value when he became a co-borrower. The pledging of credit exposed Mr. Petrick to risk. Irrespective of Ms. Chilton’s means, Mr. Petrick remained jointly and severally liable on the mortgage debt. Further, it appears that from 2006 to 2011, Mr. Petrick may have been in better financial circumstances than his mother. In his affidavit evidence, he deposed that during that period he made cash gifts in the range of $2,000 to $5,000 to his mother, not exceeding $10,000 a year. Therefore, while it may not have been necessary for Mr. Petrick to have been named on the mortgage, he certainly had the means to service the mortgage and indeed, I find it more likely than not that he did make some payments on the mortgage over the years.

[67]         Therefore, I find that Mr. Petrick gave value for his interest in the Property and Ms. Chilton did not gratuitously make Mr. Petrick a joint tenant. As this was not a gratuitous transfer, the presumption of resulting trust does not apply.

Madam Justice Francis also found that Ms. Chilton did intend for her son to have a beneficial interest in the condominium. Ms. Chilton’s argument that she intended for Mr. Petrick to hold his interest in trust for her, and following her death, for her estate, was inconsistent with her evidence that she did not want the condominium to be subject to probate on her death.

Madam Justice Francis did provide some relief to Ms. Chilton from the potential hardship of having the condominium sold while she resides in it. Madam justice Francis ordered that Ms. Chilton could continue to reside in the condominium for her life, but if she ceased to occupy the condominium, or on her death, the condominium would be sold, and the trustee in bankruptcy would be entitled to half of the net sale proceeds.   

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