1. Joint Ownership: Nothing’s Simple Anymore
Arthur Fish
Independent Financial Brokers
Toronto Fall Summit
November 2, 2016

2. Joint Ownership
What are your obligations when putting customer’s assets in joint ownership? A. A Cautionary Tale B. Why this matters now? C. What is it? D. How it Works E. Takeaways

3. The Andrade Decision: A Cautionary Tale

4. Andrade v Andrade, 2016 ONCA 368 (CanLII)
Mrs. Andrade, a mother of 7, comes to Canada from Portugal with 1 daughter. She works as a cleaner and saves money to bring her children here.
In 1974 she buys a house in downtown Toronto that she occupies with her children.
Close knit family: children give Mom their pay cheques until they marry & move out.
From 1979 title held in name of two brothers.
One brother dies in 2007.

5. Andrade, ctd.
Brother’s widow says his half interest belongs to her. She wins at trial, including costs of $237K +.
In 2011 the surviving brother gifts his share of the house to Mrs. Andrade.
Mrs. Andrade dies in 2014.
Mrs. Andrade’s estate files an appeal and ultimately wins, including $30K in costs on the appeal. There was a “resulting trust” for her and her estate.

6. Why Does Andrade Matter?
Total legal costs could be close to the value of the house.
Why did this happen?
Title on paper said the sons were the owners but the beneficial owner was Mrs. Andrade.
Decision turns on who actually paid for the property & her intent – Appeal says that’s Mrs. Andrade and it’s hers.

7. Not a Joint Ownership Case
Andrade is an ownership-in-common case
BUT the lessons of Andrade apply to parent\adult child joint ownership
“Paper” ownership is risky.
The less wealthy the client, the greater the risk.
Especially if the child on title is expected to benefit others.
Focus on the client’s long term goals and wishes
Certainty is extremely valuable

8. WHY THIS MATTERS NOW?

9. Financial Services
Financial Services Industry – especially Banks - focused on wealth management
People do not like paying estate administration tax (“Probate Fees”)
People use joint ownership to avoid Probate fees
You will help your customers put assets in joint ownership

10. Financial Services (2) Typical joint ownership forms are bare bones
Increasing demands from executors for information about joint ownership
Powers of attorney & joint ownership = toxic
Financial institutions\advisors drawn into litigation
Pressure the “deep pocket” – lawyers and courts

11. Legal Developments Joint Ownership is a way of making a gift
Gifts to adult children are presumed to create a “resulting trust’
Onus on adult child to prove parent intended a gift
Presumption of advancement for minors
Joint Ownership can mean 3 things:
Classical: immediate rights of owner + survivorship
“Legal Owner: Decision making – no survivorship
Joint Owner is trustee until owner dies (“survivorship only”)
Must be disclosed on information return when a Will is probated
Less certain than a Will = More disputes, risks and litigation

12. The Risks for You? Pay to the wrong person = double liability
Take instructions from the wrong person = breach of contract\tort\regulatory liability\reputational risk
Internal Costs: dragged into other people’s fights
External Costs: litigators seeking costs against the “deep pocket” in ordinary matters\reputational risk
Genuine Risk of Liability for IA if plan fails

13. The Risks for Your Client?
Co-owner can sever or take the assets
Disputes between co-owner and client’s attorney for property
Exposed to co-owner’s creditors (bankruptcy)
Marriage breaks down – over-ride marriage contract
Disputes between co-owner and client’s executor

14. WHAT IS IT?

15. Joint Ownership is a way of making Gifts
Putting assets in true joint ownership is a way of gifting
The entire asset is gifted, because joint owners each own the whole asset
Tenancy-in-common = each owner owns ½
In Ontario, presumed to be a gift to a spouse and to a minor child
All common law provinces: presumption of resulting trust on gift to adult child
Like all gifts owner must INTEND and DELIVER the asset

16. These Waters are Muddy …
Two 2006 decisions of the Supreme Court of Canada: Pecore and Madsen Estate
Presumption of resulting trust on transfer to adult child
Presumption of advancement on transfer to a minor child
Pecore = joint ownership upheld. Madsen = resulting trust

17. How can you tell it’s Joint …
Evidence of owner’s intent at time of transfer
Evidence of owner’s intent from conduct post- transfer
Your notes and records
Account forms
Who controlled the account?
Who benefitted from it?
Tax treatment (careful not to trigger immediate disposition)

18. Sawdon Estate: an Informal Trust
Father’s Will leaves $100k to each child and residue to charity. He puts bulk of assets in joint ownership with 2/5 children telling them to share it equally with all 5 when he dies
Charitable beneficiary challenges: says, resulting trust
Court of Appeal elaborates on SCC cases
The two children held ONLY the right of survivorship in trust
Therefore, father controlled the account while alive and capable and only he could benefit from it
Children had no rights until father died
Two children were trustees for all 5 who had the right of survivorship

19. SAWDON ESTATE: extract
“In June 2004, Arthur met with Gladys Fisher, a CIBC account representative, because he wanted to transfer one of his CIBC bank accounts into a joint account with Wayne and Stephen. Ms. Fisher explained to Arthur that the bank offered a joint bank account with a right of survivorship and one without that right. She also explained the risks associated with joint bank accounts, including the ability of the other joint account holders to withdraw the funds while he was still alive, and the potential risk of seizure by their creditors should they become bankrupt or get divorced.

20. HOW IT WORKS

21. Joint Ownership: Three Options
With full owner’s rights & survivorship
Legal owner without survivorship: decision-making only
Legal owner with obligations to beneficiaries who have only right of survivorship (an informal trust)
JOINT = each owns all, survivor takes all
TENANCY-IN-COMMON = each owns ½, survivor owns only his\her ½

22. True Joint Ownership with Survivorship
A gift by the owner
If to wife (in Ontario) or minor children, presumed a gift
If to adult children, presumption of resulting trust
SURVIVORSHIP = both own the entire account
TENANCY-IN-COMMON = each owns 1/2
Survivor automatically takes all on death of joint owner
Assets now subject to debts (bankruptcy) of joint owner or withdrawal by joint owner
Joint ownership can unilaterally be “severed” into tenancy-in-common

23. True Joint Ownership: Will Substitute
Joe: brokerage account in his name alone.
Second marriage: Greta is 15 years younger.
Marriage contract: separate as to property
Joe wants full joint ownership with Greta
You explain risks, document instruction and confirm in writing
Joe loses mental capacity: Greta now instructs
Joe dies: the account belongs to Greta
Joe’s executor demands information
The estate sues. You are named. Judge rules the account is Greta’s.

24. Decisions Only: Joint Owners without Survivorship
Greta has an account with you: her name only
She wants her attorney for property to manage it if she can’t
She instructs you to put it in Joint Ownership with the attorney
You take careful instructions and recommend another approach
She insists: you confirm her instructions in writing noting that joint owner has no “beneficial” interest
On Greta’s death, the attorney claims the account for herself. A law suit ensues. You are called as a witness. The Judge gives the account to Greta’s estate.

25. On Death do this: A Kind of Informal Trust
Greta’s Will leaves everything to her 4 children equally.
She wants to avoid probate fees.
She puts the account in joint ownership with her son. He’s to share it with the others when she dies.
You suggest using an alter ego trust. She refuses.
You carefully document what Greta is doing.
She dies & her son claims the account for himself.
You testify at the trial. A Judge rules he held it in trust for himself and his siblings.
A regulatory complaint is made against you by the son. It’s dismissed.

26. Joint Ownership: Bankruptcy
Two weeks after Joe’s account is put in joint names, the bank calls a business loan to Greta’s son that Greta guaranteed.
The bank petitions Greta into bankruptcy.
Joe claims the entire account. So does the trustee. Freeze.
The trustee in bankruptcy severs the account into a tenancy-in-common.
The trustee gets ½ the account.

27. Joint Ownership: Power of Attorney - 2 Scenarios
Joe has a stroke and loses mental capacity. His son is his attorney for property.
The day after Joe has the stroke, Greta transfers the entire account to herself. Joe needs the money to pay for his care.
Greta and the attorney for property each demand the entire account. The account is frozen. The attorney severs the account into a tenancy-in-common. Greta gets ½. Joe dies two weeks later. The remaining ½ account goes to his estate not Greta.

28. Joint Ownership: Relationship Breaks Down
Two weeks after putting account in joint ownership, Greta leaves Joe.
Greta and Joe each instruct you to transfer the entire account to him\her.
Greta sends you a letter, cc: Joe, severing into a tenancy-in-common. Demands ½.
Joe says no. Tries to rely on marriage contract (separate as to property).
A Judge rules that Greta gets ½ the account.
Joe brings a claim against you and makes a complaint to your regulator.

29. TAKEAWAYS: HOW TO MAKE IT WORK

30. Takeaways: Good Practices
Joint Ownership is a way of making gifts
Easily & widely abused & subject to risks
Must be disclosed if probating Will
Use and document carefully
Let the lawyer give the advice
Know and recommend alternatives: trusts, powers & Wills

31. Takeaways: Death of a Joint Owner
Read the account documents
Always require proof of death
If signs of conflict (e.g. 3rd party demands information), review the entire file
Require identification & proof of authority before releasing information
Executor versus joint owner disputes: only they can resolve it

32. Joint Ownership: Executor v. Co-owner
The parties disagree (co-owner versus executor – can also arise with attorney for property)
Good notes and records
No favors
Neutrality
No dithering - Document requirements & deadline:
Parties settle in writing,
Parties take step to resolve (Judicial Directions), or
You pay the funds into court .

33. Joint Ownership Dispute: Options
Interpleader (Rule 43 – adverse claims to property)
Trust Funds (Trustee Act, s.36(1) with leave)
Trust Funds held for minor (Trustee Act, s.36(4) or (6) of right, with accompanying affidavit)
Also applies in many estate & power of attorney disputes