Common Misconceptions About Joint Accounts And Joint Ownership

Elderly parents will often put their money into bank accounts held jointly with their adult children, or transfer real property into a joint tenancy with one or more of their adult children. Sometimes, this is done for expediency so that an adult child can help manage the asset. In other cases, this is a planning technique used to avoid estate administration tax when the parent dies.

Whatever the motivation behind the transfer, there is a persistent misconception that the asset passes to the surviving child when the parent dies and does not form part of the parent's estate. In fact, there is a legal presumption that such assets belong to the deceased parent's estate. The adult child bears the burden to rebut the presumption and to prove the parent intended to gift the asset to the adult child.

The Pecore Framework

In Pecore v. Pecore1, the Supreme Court of Canada set out a framework of analysis for gratuitous transfers to adult children. First, a presumption of resulting trust applies to gratuitous transfers of property from a parent to an adult child. Second, a trial judge must start his or her inquiry with this presumption and then weigh all evidence to determine, on a balance of probabilities, the testator's actual intention at the time of the transfer.

Justice Rothstein, writing for the majority in Pecore, set out factors the court may consider when determining the testator's intention. In Mroz v. Mroz2, discussed below, the Court of Appeal added to this list of factors. The factors include, but are not limited to:

evidence of the transferor's intention subsequent to the transfer; the wording of banking or financial institution documents; control and use of the funds in the accounts; the terms of any power of attorney granted to the transferee; the tax treatment of the accounts; and evidence of the transferor's conduct after the transfer, to the extent it is relevant to the transferor's intention at the time of the transfer. The Recent Court of Appeal Trio

In a trio of recent decisions3, the Court of Appeal for Ontario reaffirmed the principles established in Pecore. These cases illustrate some of the factors the court will consider.

Sawdon Estate v. Sawdon dealt with an aging father who put bank accounts into joint names with two of his five children. He told the two children that when he died, the funds in the account should be distributed equally among all of his children. A residuary beneficiary argued the accounts formed part of...