This blog has been written by Mohena Singh, Associate at Fasken LLP
As an estate planner, one of the most common questions I am asked is, “How do I transfer my house or cottage to my family without paying estate administration tax?” A common way we have seen individuals attempt to accomplish their goal of transferring real property without paying estate administration tax (also known as “probate fees”) is by adding the person they want to gift the property to as a joint tenant on title of the property and gifting them an interest in the property during the individual’s lifetime. However, we have seen again and again the repercussions of using joint tenancy as a form of avoiding probate fees. The case of Jackson v. Rosenberg, 2023 ONSC 4403 yet again reminds us of why a joint tenancy is not always the best solution.
In this case, Mr. Jackson and his partner were joint tenants on a property they lived in when Mr. Jackson’s partner passed away. Mr. Jackson received the property by right of survivorship and no probate fees were payable from his partner’s estate. Following his partner’s death, Mr. Jackson sold the property and bought another one. He did not have any family and as such his intention was to gift the property to his partner’s great-niece, Ms. Rosenberg, upon his death. He added Ms. Rosenberg as a joint tenant onto the property and transferred an interest in the property to her by way of a gift, similar to the arrangement he had with his partner. Soon after, Mr. Jackson found out that Ms. Rosenberg’s husband intended to sell Mr. Jackson’s property and use the proceeds to purchase a property where Mr. Jackson would live with them. Mr. Jackson quickly decided to sever the joint tenancy upon learning this news. The question for the Ontario Superior Court became whether Mr. Jackson had a right to sever the joint tenancy and if Ms. Rosenberg had any right to an interest in the property.
The court referred to the law in respect of resulting trust established in the Supreme Court case of Pecore v. Pecore, 2007 SCC 17, and recently reviewed in Bradshaw v. Hougassian, 2023 ONSC 3266. For any gratuitous transfer to an adult who is not a spouse, the presumption of resulting trust applies, which means that the assumption is that any transfer without consideration is intended to be a transfer of property held in trust for the transferor unless proven otherwise by the transferee. In this case, the court found that the presumption of resulting trust had been partially rebutted. Mr. Jackson intended Ms. Rosenberg to hold her interest in the property in trust for Mr. Jackson during their joint lives, but it was also his intention that should he predecease Ms. Rosenberg, she should take the benefit of the property. Interestingly, the court found that Mr. Jackson had therefore gifted the right of survivorship to Ms. Rosenberg. Therefore, the presumption of resulting trust was partially rebutted as Mr. Jackson’s intent, at the time of the gratuitous transfer, was for Ms. Rosenberg to hold the property for her own benefit upon his death. He could not subsequently revoke this gift.
However, the court also found that Mr. Jackson had a right to sever the joint tenancy while he was alive, and that the severance he made was a valid severance that made Mr. Jackson and Ms. Rosenberg tenants in common each as to a 50% interest in the property. He then had the right to encumber or sell the property during his lifetime as Ms. Rosenberg would hold her 50% interest in trust for Mr. Jackson during his lifetime. Upon Mr. Jackson’s death, his 50% interest would fall into and form a part of his estate while Ms. Rosenberg’s 50% interest would pass to her through the right of survivorship.
While Mr. Jackson was ultimately able to sever the joint tenancy, the costs of his application, including legal fees, would have surpassed any saving of probate fees he was intending through a joint tenancy.
Unfortunately, there are limited options for reducing probate fees on real property. My colleagues have written about the use of (and some of the pitfalls associated with) nominee planning, the first dealings exemption, and inter vivos trusts for real property. However, sometimes the best strategy is to keep things as they are. Currently, probate fees in Ontario are approximately 1.5% of the value of the assets over $50,000. If the property value is not significant enough to justify the legal costs and related compliance costs on a yearly basis, it may be best to hold title as is and pay the probate fees on date of death of the individual.
Each strategy comes with benefits and disadvantages and the best way to know what strategy is best for any particular individual is by consulting with an estate planner who can provide advice based on the individual’s specific circumstances. The last thing anyone needs is choosing a strategy that ends up costing more than the intended savings, as Mr. Jackson had to learn the hard way.
Thank you for reading.