In a recent decision, the Supreme Court of British Columbia has clarified the property interests that may arise when a property is held in joint names. While it is clear that a transfer of property into joint names may result in either a gift or a trust, in Petrick (Trustee) v. Petrick, 2019 BCSC 1319, Justice Francis has confirmed that three situations are possible.
Petrick (Trustee) v. Petrick
Petrick involved a transfer of property from a bankrupt son to his mother. His trustee in bankruptcy applied for a declaration that the transfer was void because it was intended to defeat his creditors.
The property was a condominium located in New Westminster (the “Property”). It was acquired in 2006. Both Ms. Chilton and her son, Mr. Petrick, were registered as joint tenants. Ms. Chilton paid the down payment, but both Ms. Chilton and Mr. Petrick were borrowers on the mortgage. Although Mr. Petrick made some mortgage payments, Ms. Chilton was responsible for most of the payments and other costs associated with the Property. Ms. Chilton had lived in the Property since it was purchased, and Mr. Petrick had never lived there.
In 2013, Mr. Petrick began experiencing financial difficulties. In May 2014, one of his creditors filed a Court application seeking judgment against him for over $2.3 million. The application was set to be heard on July 22, 2014. One day before, on July 21, 2014, Mr. Petrick transferred his interest in the Property to Ms. Chilton (the “Transfer”).
Mr. Petrick’s trustee in bankruptcy claimed that the Transfer was a fraudulent conveyance and was of no effect. Ms. Chilton opposed the application, arguing that Mr. Petrick had held his interest in the Property in trust for her and that she was the only true owner.
Whether the Transfer was fraudulent depended on two issues:
- Chilton’s intention in 2006 when Mr. Petrick was registered as a joint tenant; and
- Petrick’s intention in 2014 when he transferred his interest in the Property.
Nature of Jointly Owned Property
If a person holds an interest in property in trust for another, then that person does not have a beneficial interest and cannot take the property for themselves. As such, if Mr. Petrick held his interest in trust for Ms. Chilton (and held only a legal interest), then the Property would not be available to the trustee in bankruptcy or to Mr. Petrick’s creditors. The Transfer could then not be fraudulent.
In deciding whether Mr. Petrick had a beneficial interest, Justice Francis confirmed that three situations are possible when property is held in joint names:
 Not all jointly owned property is subject to a true joint tenancy. Pursuant to the Supreme Court of Canada’s decision in Pecore v. Pecore, 2007 SCC 17 [Pecore], property that is held in joint tenancy can give rise to three potential scenarios in terms of the beneficial interests of the title holders:
- a) A true joint tenancy, in which the joint tenants are each owner of the whole. Each enjoys the full benefit of property ownership and the ultimate survivor will enjoy the whole title for him or herself.
- b) A resulting trust, wherein only one joint tenant has any beneficial interest in the property and the other joint tenant, usually a gratuitous transferee, holds title in trust for the other and has no beneficial interest in the property.
- c) A scenario which is sometimes referred to as a “gift of the right of survivorship,” wherein a joint tenant is gratuitously placed on title and has no beneficial entitlement to the property during the lifetime of the donor, but if the donee survives the donor, the donee will receive the entire property by right of survivorship. In Bergen v. Bergen, 2013 BCCA 492 at para. 37 [Bergen], Newbury J.A. described a gift of the right of survivorship in a joint account as “an immediate gift of a joint interest consisting of whatever balance exists in the account on the transferor’s death, assuming he or she dies first.”
… [P]ost-Pecore, it is possible for a donor to make a gratuitous transfer into joint tenancy which will be an immediate inter vivos gift but will allow the donor to retain the whole beneficial interest during the donor’s lifetime, and have the property pass to the surviving joint tenant on the donor’s death.
The nature of the ownership interest depends on the intention of the transferor. If the transferor’s intention cannot be determined, then the Court will rely on evidentiary presumptions.
A “True” Joint Tenancy
Justice Francis held that this was a “true” joint tenancy. Mr. Petrick had a beneficial interest in the Property with a right of survivorship. This was because:
- The acquisition of the Property in joint names was not “gratuitous”. Mr. Petrick was a co-borrower on the mortgage, and it was more likely than not that he had made some payments on the mortgage. As a result, he was not presumed to hold his interest in trust.
- Chilton intended for Mr. Petrick to have a right of survivorship. Ms. Chilton wanted Mr. Petrick to inherit the Property on her death, and she knew that if the Property were registered in joint names, then a grant of probate (and payment of probate fees) would not be needed. This meant that she did not intend for Mr. Petrick to hold his share of the Property in trust for her. If this were the case, then the Property would pass through her estate on death and be subject to probate. This was precisely what Ms. Chilton wanted to avoid.
Was the Transfer Fraudulent?
The Fraudulent Conveyance Act provides that a transfer of property, if made to defeat creditors, will be void and of no effect against those creditors. All that must be shown is that the transferor intended to put assets out of reach of their creditors; no further dishonest or morally blameworthy intent is required.
Here, the circumstances could lead to no conclusion other than that the Transfer was done to put the Property out of reach of Mr. Petrick’s creditors. Ms. Chilton did not pay Mr. Petrick for the Transfer, and the Transfer was registered one day before a Court application seeking over $2.3 million from Mr. Petrick. In addition, Mr. Petrick’s own evidence was that he transferred the Property because he was in serious financial difficulties. The Transfer was of no effect as against Mr. Petrick’s creditors.
Balancing the Parties’ Interests
Justice Francis then considered the appropriate remedy, taking into account Mr. Petrick’s bankruptcy and the fact that Ms. Chilton, an 82-year-old retiree, wanted to continue living in the Property. The relief ordered had to remove the Transfer as an obstacle to the creditor’s recovery. To balance the parties’ interests, Justice Francis ordered that:
- one-half interest in the Property be transferred to the trustee in bankruptcy; and
- the sale of the Property be deferred until Ms. Chilton ceased to occupy the Property.
Clarification of the Nature of Jointly Owned Property
In Zeligs v. Janes, 2016 BCCA 280, Justice Dickson observed that joint tenancy is a popular form of estate planning, particularly within families. However, as noted in Petrick, “joint tenancy as an estate planning device can often create unexpected problems”. Petrick provides a useful summary of the possible ownership interests that may arise with jointly held property, and examples of the evidence needed to assist in resolving these problems.
For assistance with your estates matter, please contact a member of Clark Wilson LLP’s Estate + Trusts Practice Group.