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Feb. 8, 2008
Making sense of precedent
How recent Supreme Court decisions should influence your own.
TRUDE HUEBNER
Joint bank accounts have been referred to as the "poor man's will." Currently, this is more the case than in the past, because your beneficiaries will become poor paying for the legal challenge of proving your intent for the disposition of jointly held assets. These include bank accounts, homes and investments held between parent and an adult child.
Two Supreme Court decisions brought down in May 2007 changed the landscape of jointly held assets in Canada. Joint accounts have been used for many years by people who might want to avoid probate or simplify the management of their accounts when illness or aging means they need some help managing their affairs. In the past, the right of survivorship was presumed, with the balance of the asset going to the surviving holder of the title. Now, unless the intention of the parent is clearly documented, it is presumed the child is holding the joint account in trust for the parent's estate.
The cases, Pecore v. Pecore and Madsen Estate v. Saylor, came down on the same day, May 3, 2007, but are very different in evidence presented to the court. In Pecore, the action was brought forward by an ex-husband against his father-in-law's estate and in Madsen the action concerned siblings. Both cases involved bank accounts and investments with adult children named as joint owner. In each case, the father contributed to the assets and the adult children did not.
The Pecore case involved almost $1million in mutual funds jointly owned by Edwin Hughes and his daughter, Paula Pecore. After Pecore divorced, her former husband tried to establish his right to half the account on the grounds he was a beneficiary in Hughes' will. The Supreme Court ruled against him, upholding an earlier ruling that the money was a gift to the daughter alone.
The opposite prevailed in the case of Patricia Brooks versus her two siblings. There, the courts ruled an $185,000 joint account between Brooks and her father had been set up only for "convenience purposes." The siblings showed that, since no true gift had been intended for Brooks' sole benefit, the money had to be split three ways. This illustrates the principle of holding the assets in trust for the parent's estate.
How does this affect your planning for the disposition of assets? According to Mark Weintraub, an experienced litigator specializing in estate law in Vancouver, you need to make a detailed memorandum of your intent and, when doing, so there are several points to consider, including mental competency, no undue influence and, if you intend a gift, then conduct consistent with a gift; for example, stating who enjoys the property during your lifetime.
"Now we look at what is the intention of the transfer. That is the fundamental question," Weintraub explained. "With the Pecore decision, the spotlight is on evidence." He continued, "If you want to give a gift, make your intention clear and make an outright gift."
Control of the asset is also a consideration and the Pecore decision has created additional challenges – now the burden is on the recipient to prove the asset was intended to be a gift. Unfortunately, when you are gone, you can no longer explain what your intention was for the asset. When planning, you need to clearly indicate if the joint holdings are to be held separately from the estate assets.
A quick survey of lawyers indicates that Pecore would apply to any gifts. The prudent course of action is to consult with a lawyer familiar with the principles of the Pecore decision.
Bank documents, power of attorney documentation, control and use of the accounts and tax treatment of the account are all relevant evidence according to the Supreme Court.
The reason litigation happens with estates is that, sometimes, the parents themselves send mixed messages about their intention. Clear and open communication within the family can help to clear up matters, but if the family is at odds, there will always, be something to fight about.
The Joint Asset Planning Kit has been developed by Barry Fish and Les Kotzer of Fish and Associates in Thornhill, Ont., as a guide to planning, using the language consistent with the Supreme Court decision. As Fish states on his website, the kit does not override a will, but is intended to allow a parent to clearly express his or her intentions regarding joint parent-child accounts.
It is extremely rare for estate matters to be heard by the Supreme Court, which is an indication the findings are considered to be of national importance. The other indicator is that the Joint Asset Planning Kit is available on the Shopping Channel.
Trude Huebner is a Vancouver freelance writer.
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