All About Estates

Fraudulent Conveyances and Your Estate

It is well known that Ontario testators enjoy the freedom to distribute their estates as they wish (provided their statutory obligations are met); however, the recent case of RBC v. Scarborough, 2019 ONSC 3369, reminds readers to be cognizant of the impact of debts and liabilities upon those who may stand to benefit from an estate, as well as the ramifications of taking steps to deal with one’s estate in the time (immediately) preceding a person’s ultimate demise.

As a reminder, a conveyance of real property “made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts….” is void and can be set aside by the court (Fraudulent Conveyances Act, R.S.O. 1990, c. F. 29, s. 2.).The plaintiff bears the onus of proving the intent of the transferor. Mere suspicion that the transfer was improper is not sufficient, although suspicious circumstances coupled with a non-arm’s length relationship between the parties may raise a prima facie case. Where the conveyance is voluntary, it is necessary to prove the intent (at the time of the conveyance) of the transferor only.

In RBC v. Scarborough, the plaintiff Royal Bank of Canada (“RBC”) brought a motion for summary judgment against the defendant, Jody Scarborough (“Scarborough”), personally and in her capacity as the estate trustee for the estate of her law common law spouse, Donald Wilson (the “Estate” and “Wilson”, respectively). Wilson died on June 20, 2017.

Wilson was diagnosed with colorectal cancer on May 10, 2016. On June 13, 2017, Wilson transferred his home to himself and Scarborough as joint tenants. After Wilson died on June 20, 2017, Scarborough became the sole owner of the property by right of survivorship.

RBC brought a claim against Wilson in May 2017 (the action was continued against Wilson’s estate after he died). RBC sought, in part, payment of outstanding loans advanced to Wilson under two credit card accounts. After learning that Wilson transferred his property to Scarborough, RBC also sought a declaration that the conveyance was fraudulent and an order restoring title to the Estate.

Scarborough stated that the conveyance of title of the property to her as a joint tenant was the completion of a process commenced by Wilson one year prior and done for estate planning purposes. In particular, in February 2016, Wilson discussed his home ownership with his lawyer and that he and Scarborough both wished to jointly hold title to their family home. Based on instructions provided on May 24, 2016, the lawyer prepared the transfer documents. However, before completing the registration, the lawyer received further instructions from Wilson and Scarborough to hold off on completing the transfer  until a lawsuit involving Scarborough over a motor vehicle accident was resolved. It was not disclosed to the real estate lawyer at that time that Wilson had been diagnosed with cancer.

On May 25, 2017, just days after RBC commenced its action against Wilson for the outstanding debt, Scarborough sent an email to the real estate lawyer that her court case was over and that the transfer should be processed immediately (i.e. that day). There was some delay, and the transfer was ultimately completed on June 13, 2017.

Scarborough’s evidence was that the property transfer followed execution of mirror wills on April 10, 2017 (in which Wilson and Scarborough left each other their respective estates). It was her position that the transfer was not related to RBC’s lawsuit against Wilson, so it should not be set aside.

At the hearing of the summary judgment motion, RBC argued that  the debt owed by Wilson was not disputed and it would be disproportionate to proceed with a trial where there is no viable explanation for the transfer other than fraudulent intent. Scarborough argued that the summary judgment motion should be dismissed because, in part, the estate planning defence was a genuine defence . In fact, Scarborough sought a final determination from the motion judge on whether the transfer of title should be set aside as a fraudulent conveyance.

The court ultimately concluded that at the time of the transfer, Wilson would have known of his indebtedness to the bank. His credit card account was in arrears and he had been unemployed for some time. He had cancer and had recently executed his last will and testament (leaving his estate to Scarborough). The house was his only asset. The court further commented that Wilson had not paid the debt for some time and appeared to have not been prepared or willing to use his only asset to do so. The court stated at paragraphs 26 – 27:

“The transfer of title to Ms. Scarborough meant that his death would result in her immediately taking title of the entire asset by survivorship. This estate planning purpose aligned, in the circumstances of Mr. Wilson’s illness, with altering the situation to make the plaintiff’s collection of its debt more difficult by placing the plaintiff at risk of being unable to execute against Mr. Wilson’s only asset. Had the transfer been made at an earlier time, it would, perhaps, have been considered to be for estate planning purposes, unrelated to the debt owing. However, in the circumstances that existed at the time of the conveyance, knowing that he was ill with cancer, the haste with which Mr. Wilson pursued this transfer of his only asset, coincident with the very time at which the plaintiff initiated its collection action, leaves no doubt that his intention was not merely estate planning.”

As such, the court found that RBC established that Wilson had the requisite improper intention and that the transfer was a fraudulent conveyance which must be set aside.

The lesson: the claim of ‘estate planning’ will only take a person so far. Creditors will aggressively go after estates and estate beneficiaries to ensure their debts are satisfied. In deciding a claim of fraudulent conveyance, the court will take all of the circumstances into account, specifically the timing of the transfers at issue and the relationship between the parties. Where the transfer appears suspicious, the court may be inclined to claw assets back into an estate.

About Joanna Lindenberg
Joanna is an experienced estates, trusts, and capacity litigator at de VRIES LITIGATION LLP. Joanna obtained her law degree from the Shulich School of Law at Dalhousie University after completing a Bachelor of Arts degree at McGill University. Following her call to the Ontario Bar in June 2011, Joanna obtained a Masters of Law at the University of California Los Angeles (UCLA), specializing in international and comparative law. Joanna's current practice focuses on, in part, will challenges, dependant’s support, capacity, and power of attorney disputes.

0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *