The Ontario Court of Appeal recently re-affirmed the principle that when an asset is transferred from a parent to themselves and an adult child as joint owners with a right of survivorship, there is a presumption that the property is being held by the child on ‘resulting trust’ for the parent’s estate. This presumption must be rebutted by the child if the child is to take the asset for themselves.
In Mroz v Mroz, an elderly Testatrix, KM, survived her husband. KM’s main asset was her home (the “Property”). Having been diagnosed with a terminal illness, KM transferred the title to the Property to herself and her daughter, HM, as joint tenants with right of survivorship in order to avoid Estate Administration Tax (‘probate tax’) on the Property. At the same time, KM executed a Will that created cash bequests to other family members to be funded by the sale of the Property.
Immediately following KM’s death, HM received the Property by right of survivorship and then sold it for $476,000. HM took this money for herself and did not work it through the Will. The other estate assets outside of the Property were not enough to satisfy the bequests in the Will.
The beneficiaries of KM’s estate sued HM. The Court of Appeal reviewed the law on transfers of property between parents and adult children and found that a presumption of resulting trust arose when KM transferred the Property to herself and HM as joint tenants. A resulting trust “arises when title to property is in one party’s name but that party, because he or she is a fiduciary or gave no value for the property, is under an obligation to return it to the original title owner.” In this case, there was a presumption that, on KM’s death, HM held title to the Property in trust for KM’s estate. The onus was then on HM to rebut the presumption and show that the transfer of the Property was intended to be a gift to her.
The Court found that HM had not rebutted the presumption, as all the evidence showed that KM’s intention in transferring the Property into joint names was that it remain a part of her estate to fund the bequests in her Will.
The Mroz case demonstrates the problems that can arise when assets are placed into joint ownership between parents and children. The desire to simplify the administration of the estate and avoid probate tax can result in the estate being tied up in lengthy litigation if the child claims that the property was intended to be a gift to them and not to form part of the estate. Such transfers should be documented carefully to show what the transferor’s true intentions are, and a lawyer should always be consulted.