Deed of Gift Unnecessary to Avoid Resulting Trust

A recent court of appeal decision makes it clear that evidence of a full and complete gift (rather than resulting trust) does not necessarily mean a “deed of gift”.

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The recent court of appeal case regarding the McKendry Estate involved Mary McKendry (deceased), her 5 children (4 daughters 1 son), and the Vancouver property purchased by her and her husband in the 1960s .

The facts are as follows:

In 2008, prior to her death, Mary transfers title to her Vancouver home to her son’s name. Mary is clear that she wants her son to have access to equity for investment purposes, but that he holds the beneficial interest in the property on a trust for her estate. Mary signs a trust declaration document, but her son never signs it. The document states that Mary’s son was to divide the beneficial interest in the property into three equal shares: 1 would go to her son, 1 would go to her daughter, and the other would be divided between the three remaining daughters.

In 2010, Mary decides that she wants her son to have the property outright on her death. In February, Mary goes to see another lawyer and asks the lawyer to dissolve the trust that she thought was created when the property was transferred. Mary asks that lawyer to create a new trust naming her son as the trustee and providing that her son would divide the property into 5 different shares to be equally divided between her children on her death. Mary’s son does not sign the second trust declaration either.

By April 2010, Mary obviously changes her mind because she calls the lawyer back and asks that the second trust declaration be put “on hold”.

In November, Mary’s son drops off a hand written note at the lawyer’s office which states that on her death her son is to have sole possession of the property and its contents and her daughters are to receive their shares of her estate pursuant to her will. The note also says that Mary trusts her son to take care of her family if necessary.

After the lawyer receives the note, she speaks with Mary on the phone. Mary tells the lawyer that she thinks it is simpler to keep the property in her son’s name and that she understands that the property will go to her son absolutely on her death.

In December 2010, Mary meets with the lawyer and signs a will. The will appoints Mary’s son and one of her daughters as executors and trustees of her estate. The will also divides the residue of Mary’s estate equally among Mary’s four daughters. The will references that the property is in joint names with Mary’s son and that he would receive it subject to the mortgages registered against it. Mary signs the will.

In February 2012, Mary dies.

Mary’s daughters start an action against Mary’s son in May 2012 and in March 2014 they apply to vary Mary’s will.

At trial, the trial judge found that in 2008, Mary did not intend to transfer a beneficial interest to her son. The trial judge found that what happened in 2010 was at best a change in Mary’s intention with respect to the property and that even if Mary had intention to gift the property to her son in 2010, the gift was not perfected. The trial judge stated that the two page documents from 2010 were promises and that an executed deed of gift under seal was required to perfect a gift to her son.

The court of appeal describes “joint tenancy” as follows:

[27]         Joint tenancy is a form of concurrent property ownership.  When the “four unities” of title, interest, time and possession are present, co-owners hold an equal interest in property as a unified whole: Zeligs v. Janes, 2016 BCCA 280 at para. 38.  However, parties may hold legal title to property as joint tenants while beneficial ownership is held differently.  For example, a mother and son may own real property as joint tenants in law while the mother alone owns the beneficial interest.  In such circumstances, as Rothstein J. noted in Pecore v. Pecore, 2007 SCC 17 at para. 4:

… The beneficial owner of property has been described as “the real owner of property even though it is in someone else’s name”: [citation omitted] …

[28]         The principal characteristic of joint tenancy is the right of survivorship.  When a joint tenant dies, his or her interest in property is extinguished. If there is more than one surviving joint tenant, they continue to hold the property as joint tenants. The last surviving joint tenant takes full ownership of the property.

[29]         So long as the requirements of a binding gift are met, the owner of property may, during his or her lifetime, make an immediate gift of a joint tenancy, including the right of survivorship.  This is so regardless of whether the donee of the gift is to hold it for the benefit of the donor while he or she is alive.  When gifted inter vivos, the right of survivorship is a form of expectancy regarding the future.  It is a right to what is left of the jointly-held interest, if anything, when the donor dies: Simcoff v. Simcoff, 2009 MBCA 80 at para. 64; Bergen v. Bergen, 2013 BCCA 492 at para. 37; Pecore at paras. 45-53.

[30]         A donor may gift the right of survivorship, but continue to deal freely with property throughout his or her lifetime.  In Simcoff, Steel J.A. explained why:

64  Simply, and conceptually, the fact that a “complete gift” may have been given and that this gift included a right of survivorship does not, prima facie, prevent a donor from dealing with the retained joint interest while alive. The right of survivorship is only to what is left. Accordingly, if one joint owner drains a bank account (in the case of personal property) or severs a joint tenancy (in the case of real property), there is nothing in the right of survivorship itself that somehow prevents this. In commenting on the issue of survivorship in Pecore, Rothstein J. wrote (at para. 50):

Some judges have found that a gift of survivorship cannot be a complete and perfect inter vivos gift because of the ability of the transferor to drain a joint account prior to his or her death: see e.g. Hodgins J.A.’s dissent in Re Reid [(1921), 64 D.L.R. 598 (Ont. C.A.)]. Like the Ontario Court of Appeal in Re Reid, at p. 608, and Edwards v. Bradley, [[1956] O.R. 225] at p. 234, I would reject this view. The nature of a joint account is that the balance will fluctuate over time. The gift in these circumstances is the transferee’s survivorship interest in the account balance – whatever it may be – at the time of the transferor’s death, not to any particular amount.[Emphasis in original.]

With respect to gifts and resulting trusts, the court states:

[31]         A gift is a gratuitous transfer made without consideration.  Two requirements must be met for an inter vivos gift to be legally binding: the donor must have intended to make a gift and must have delivered the subject matter to the donee.  The intention of the donor at the time of the transfer is the governing consideration.  In addition, the donor must have done everything necessary, according to the nature of the property, to transfer it to the donee and render the settlement legally binding on him or her: Kooner at 79-80; Pecore at para. 5.

[32]         A gift may be delivered in various manners.  For example, a donor may choose to transfer property directly to a donee or a trustee, or may retain possession and make a declaration of trust.  Once a gift is given, the donor cannot retract it.  If it is incomplete, however, the court will not perfect a gift.  Accordingly, where the gift rests merely in a promise or unfulfilled intention, the court will not compel an intending donor to follow through with making the gift: Kooner at 79-80; Pecore at para. 56.

[33]         The standard for proving a gift is the usual civil standard of a balance of probabilities: Singh Estate v. Shandil, 2007 BCCA 303 at paras. 24-27.

[34]         The intention of a person who transfers property gratuitously to another is sometimes difficult to determine.  This is particularly true where the transferor is deceased.  For this reason, common law rules have developed to guide the court’s inquiry.  In Pecore, the Supreme Court of Canada explained those rules and how they apply to property held in joint tenancy.

[35]         In summary, a resulting trust arises when title to property is held in the name of a party who gave no value for it.  In such circumstances, that party is obliged to return the property to the original title owner unless he or she can establish it was given as a gift.  In the case of a gratuitous transfer, a rebuttable presumption of resulting trust applies when the transfer is challenged.  The judge commences the inquiry with the presumption, weighs all of the evidence, and attempts to ascertain the actual intention of the transferor.  The governing consideration is the transferor’s actual intention. The presumption of resulting trust determines the result only where there is insufficient evidence to rebut the presumption on a balance of probabilities: Pecoreat paras. 20, 22-25, 44; Kerr v. Baranow, 2011 SCC 10 at para. 18.

[36]         When legal title to property is transferred gratuitously and a resulting trust arises, the right of survivorship is held on trust by the transferee unless otherwise established.  In Bergen, Newbury J.A. explained why:

[42]      … Consistent with this, the authors of Waters [Donovan W.M. Waters, Mark R. Gillen, & Lionel D. Smith, Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Carswell, 2012)] in the most recent edition (post-Pecore) state:

If A supplies the purchase money and conveyance is taken in the joint names of A and B, B during the joint lives will hold his interest for A, B will also hold his right of survivorship − again by way of resulting trust for A’s estate, because that right is merely one aspect of B’s interest. In other words, the starting point is that B holds all of his interest on resulting trust for A, or A’s estate. However, evidence may show that, while A intended B to hold his interest for A during the joint lives, it was also A’s intention that, should he (A) predecease, B should take the benefit of the property. The presumption of resulting trust would then be partially rebutted, in relation to the situation that has arisen, so that B would not hold his interest (now a sole interest and not a joint tenancy) on resulting trust. He would hold it for his own benefit. [At 405; emphasis added.]

With respect to how the above applies to land, the court of appeal states,

[37]         Academics have sometimes questioned whether the presumption of resulting trust applies to gratuitous transfers of land, although there is authority from this Court to support the view that it does: Fuller v. Harper, 2010 BCCA 421 at para. 43.  In this case, it is unnecessary to decide the issue because there is clear evidence of Mary’s intentions.  Regardless, transfers of land are subject to statute.  In particular, the Law and Equity Act and the Land Title Act, R.S.B.C. 1996, c. 250, Part 12 both apply to transfers of real property.  Pursuant to the Law and Equity Act,contracts respecting land must be in writing to be enforceable.  Pursuant to the Land Title Act, transfers of land must be in a prescribed or otherwise acceptable form and registered against title to land.

[38]         The judge referred to s. 59(3) of the Law and Equity Act, but not s. 59(1), in reaching her conclusion.  In my view, both ss. 59(1) and (3) of the Act are relevant.  They provide, in part:

59 (1) In this section, “disposition” does not include

(a) the creation, assignment or renunciation of an interest under a trust, …

(3) A contract respecting land or a disposition of land is not enforceable unless

(a) there is, in a writing signed by the party to be charged or by that party’s agent, both an indication that it has been made and a reasonable indication of the subject matter,

The court of appeal makes it clear that the only relevant consideration is Mary’s actual intention at the time of the transfer. In this case, the presumption of resulting trust is not required to determine what Mary’s intention was because there is actual evidence of Mary’s intention. In 2008 and 2010 Mary’s intentions were “manifest and unambiguous”.

In 2008, when Mary gave legal ownership of the property to her son in joint tenancy, her intention was that he would hold it in trust. Mary intended to retain the entire beneficial interest including her right of survivorship. Even though the son did not sign the trust declaration, Mary’s intentions were clear and unambiguous.

In 2010, Mary’s intention changed. The note and the 2 page legal document prepared by the lawyer was unambiguous in that Mary renounced her beneficial interest in survivorship and gave it to her son. After 2010, it was clear that she intended to make an immediate gift of survivorship to her son. As at December 2010, Mary had done everything necessary to to gift her beneficial interest in the property to her son.

The court of appeal found that nothing more would have been gained if Mary had executed a deed of gift under seal, given her clear and formally expressed intention (in the two page document prepared by her lawyer). The immediate inter vivos gift was complete and binding. The son was entitled to retain the property.

If you are facing a similar situation or want legal advice about claim against a family member respecting property placed in joint tenancy with a family member, please contact us.

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