When it comes to estate planning, the main goal is to leave as many assets as possible to your loved ones without them having to pay costly probate fees and taxes. Due to this cost-cutting objective, beneficial title transfers have become a tool many people tend to turn to when starting estate planning. However, one should be especially cautious when choosing to gift title to their property during the owner’s lifetime considering recent case law on the subject.
Property Ownership in Canada
Before we delve into the discussion of the effect of beneficial title transfers, I want to note that there are two ways title to property can be held between more than one individual in Canada – (1) joint tenancy, and (2) tenancy in common. When beneficial title transfers are used as an estate planning tool, it is imperative that the donee is added to the title as a joint tenant and not a tenant in common for them to take advantage of the right of survivorship. What is the right of survivorship?
The right of survivorship is a benefit of joint tenants which ensures that the property is automatically transferred to the surviving tenant upon the death of the deceased one. The last tenant (owner) standing will get 100% of the property. It is worth noting that the property held in joint tenancy is also excluded from the deceased tenant’s estate, and, therefore, does not and cannot be probated. Remarkably, in Ontario, joint tenancy can be extinguished unilaterally by a joint tenant by registering a transfer of their share in the property to themselves.
Jackson v Rosenberg
The Ontario Court considered the use of beneficial title transfers, trusts, and the gifts of the right of survivorship in the 2023 Jackson v Rosenberg decision. The case concerned interest in the property owned by Mr. Jackson who was involved in a romantic relationship with Mr. Rosenberg. After Mr. Rosenberg’s passing, his interest in a condominium owned jointly by the parties was transferred to Mr. Jackson by the application of the right of survivorship. Eventually, Mr. Jackson proceeded to sell the condominium and purchase a home in Port Hope for him to live in. Ms. Rosenberg, the niece of Mr. Rosenberg, was named as an alternate beneficiary in the mirror wills that Mr. Jackson and Mr. Rosenberg had prepared before Mr. Rosenberg’s passing. Remembering taking advantage of the right of survivorship, Mr. Jackson agreed to add Ms. Rosenberg to the title of his new home in Port Hope as a joint tenant with the intention of her avoiding paying probate fees since he intended for the home to be transferred to Ms. Rosenberg upon his death.
The issues arose when Ms. Rosenberg had come to Mr. Jackson’s home with her spouse and began to describe that they planned to renovate and sell the property to purchase a home elsewhere for Mr. Jackson to live with the couple. This frightened Mr. Jackson and he turned to a lawyer to transfer his share in the property to himself to sever the joint tenancy. This meant that upon his death, Ms. Rosenberg was not to become the sole owner of the property by way of application of the right of survivorship, since the title was now held by the parties as tenants in common. This transfer and the intention of the parties became grounds for a court case which is currently being appealed.
It is established law that the joint tenancy can be destroyed through severance when a joint tenant transfers their interest to themselves which transforms the joint tenancy to a tenancy in common. For a severance to be valid, the joint tenant must complete the severance during their lifetime – it cannot be done by a testamentary disposition (will). A joint interest cannot be granted by way of a will because it ceases to exist at the moment of death.
It is important to note that the joint tenants can agree by contract not to sever the joint tenancy, however, as per the decision in Jackson v Rosenberg, it was suggested that no such restriction should be implied. There are restrictions on unilateral severance of joint tenancy enforced by legislation in Alberta and Saskatchewan. There is no equivalent legislation in Ontario.
Joint Tenancy Presumptions
A Supreme Court decision of Pecore v Pecore, 2007 SCC 17 extensively discussed the rights and obligations that come with the joint tenancy, and Pecore established that a property held in a joint tenancy can give rise to 3 potential scenarios:
- A true joint tenancy with the application of the right of survivorship.
- A resulting trust where one party is holding the interest of another in trust.
- A gift of the right of survivorship where the tenant who was the original owner retains beneficial ownership of the property during their lifetime and the tenant who was added can benefit from the right of survivorship upon the original tenant’s passing.
How can one distinguish between the 3 presumptions? The intention of the parties is key. The first presumption, a true joint tenancy, would normally be considered when the property was transferred to the tenants at the same time, for instance, spouses purchasing their family home. This example may be problematic, however, due to the operation of Family Law which is beyond the scope of this article.
The operation of resulting trusts was further examined in Bradshaw v Hougassian, 2023 ONSC 3266 decision. To quote from the case:
A resulting trust arises where the property is in one party’s name, but impressed with an obligation to return the property either because the holder is a fiduciary or because the transferee gave no value for the property. The intention of the parties at the time of the transfer is the governing consideration. Where a gratuitous transfer is made, there is a rebuttable presumption that the transferor intended to create a trust rather than made a gift, on the principle that “equity presumes bargains and not gifts”. The onus is on the person receiving the transfer to demonstrate that the gift was intended, failing which the transferee holds the property in trust for the transferor. The evidence of intention of the grantor to gift must be contemporaneous or nearly so.
When it comes to the gift of the right of survivorship, 3 conditions have to be present to establish a gift:
- An intention to make a gift on the part of the donor without consideration or expectation of remuneration.
- An acceptance of the gift by the done.
- A sufficient act of delivery or transfer of the property to complete the transaction.
The court will consider not only whether a gift was intended but also the nature of the gift. In the present case, the intention was determined to gift the right of survivorship to Ms. Rosenberg.
When the transferor maintains their beneficial interest in the property during their lifetime may support the findings of a resulting trust, unless there is evidence that the transferor intended to gift the right of survivorship. The intention of the transferor that in the event that he predeceases the transferee, the whole intertest in the property is then transferred to the transferee and not to the transferor’s estate, partially rebuts the resulting trust presumption and therefore is in line with the gift of the right of survivorship.
While the gift of the right of survivorship is immediate, it is a gift of whatever remains at the death of the transferor not what existed at the time of the transfer. In the context of real property, this means that a joint tenant is free to deal with their interest in the property as they wish, including transferring it to themselves to sever the joint tenancy. Because the gift is to deal with whatever is left, if the joint tenant (donor) transfers the property to himself to sever the joint tenancy, nothing is left to deal with by way of the right of survivorship.
Seek Professional Advice
What does this decision mean for estate planning? The law surrounding this issue is complex and requires careful consideration. If you are thinking of utilizing beneficial title transfers as an estate planning tool, you must consider discussing your estate strategy and intentions with a real estate and estates lawyer to ensure that you can make your plan a reality.
