As a lawyer whose area of expertise is estate planning I am often asked about “simple” strategies to avoid or reduce the amount of probate taxes that may be payable on an individual’s death. (Probate is the process to confirm the validity of an individual’s Will. It is not always needed in order for an executor to be able to administer the assets of an individual’s estate. If it is needed, then a tax is payable to the Province of Ontario based upon the value of the assets of the individual’s estate governed by the Will submitted to the Court. There may be some assets that are exempt from the tax calculation and certain debts will also reduce the amount of the taxes payable.)
One of the most commonly, albeit perhaps ill advisedly, used strategies is for an individual to transfer an asset he/she owns into joint names with another with right of survivorship. This is perhaps most often used by a parent transferring property into joint names with one or more of their children. Typically the parent wants to maintain control of the asset until his/her death and only intends for the transferee child to become the owner on the parent’s death. Further, often the parent wants the transferee child to deal with the property as the parent would want if the property had fallen into the parent’s estate and was governed by their Will. In other words, if the parent has other children that they intend to treat equally on their death by the terms of their Will, they would want the transferee child to divide the property equally among all the children.
While this strategy may be simple to implement, it has several complexities that must be addressed. Those complexities range from ensuring that the probate avoidance aspect is truly effective by, where necessary, having the parent create multiple Wills to ensuring the parent’s intentions are clear vis a vis what they intend to give to the transferee child. In particular, if the parent wishes to maintain complete control over the property until their death and does not intend to make a gift of the beneficial interest in the right of survivorship at the time of the transfer, this needs to be clear. Or, to put this another way – if the original owner/parent wants to be able to change their mind about who will benefit from the property on their death then they need to make this clear. This was the upshot of the 2013 Saskatchewan Queen’s Bench decision in Bradford v. Lyell 2013 SKQB 330 (CanLII).
The facts in this decision were as follows. A deceased grandparent transferred title of their condominium into joint names with their granddaughter. The granddaughter then moved to Greece. The grandparent then made a new Will in which they did not provide any benefits to the granddaughter. In the Will the grandparent specifically referred to not wanting to benefit the granddaughter with any share of the condominium.
The executor of the estate took the position that the granddaughter was holding the condo on resulting trust for the grandparent’s estate. The granddaughter took the position that the beneficial interest to receive the condominium on death had been gifted to her at the time her grandparent transferred title into joint names with her. The drafting solicitor provided evidence that the purpose of the transaction was to avoid probate and provide for the granddaughter.
The judge determined that the evidence clearly supported an intention on the grandparent’s part to benefit the granddaughter at the time the condominium was transferred into joint tenancy. The issue Justice Laing had to consider was whether the grandparent could change her mind. Justice Laing determined that as the grandparent gifted the beneficial interest in the right of survivorship at the time of transferring the property into joint tenancy, the gift was complete. As a result, the granddaughter was the owner of the condominium without any interest by the grandparent’s estate. As the grandparent had, at the time of making the transfer, intended to benefit the granddaughter with the beneficial interest in the property on death, they could no longer change their mind.
The upshot of this decision is both clients and lawyers advising clients need to be absolutely clear about the intention and implications of putting property into joint tenancy. Appropriate documentation needs to be prepared and executed that clearly stipulates what the original owner’s intentions are. At the end of the day, if litigation is needed to resolve intention, the quantum of probate taxes that was saved will more than likely be outstripped by the costs, delay and ill will that flows from the litigation needed to resolve who is the ultimate owner of the property.