Rule of Pecore -Hull on Estates #208
Listen to:Rule of Pecore -Hull on Estates #208
This week on Hull on Estates, Chris Graham and David Smith revisit the decision of the Supreme Court of Canada and Pecore. This case considered the approach taken by Pecore.
The following issues are examined:
• Applying the presumption of resulting trusts to various fact scenarios.
• Evidence required to rebut the presumption for different classes of assets.
• Types of corroboration permissible under the Evidence Act to rebut the presumption.
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Christopher M.B. Graham – Click here for more information on Chris Graham.
David M. Smith – Click here for more information on David Smith.
David Smith: Hello and welcome to Hull on Estates. You’re listening to episode #208 on Tuesday, May 25th, 2010.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of
Chris Graham: Hi and welcome to another episode of Hull on Estates. I’m Chris Graham.
David Smith: And I’m David Smith.
Chris Graham: If you want to be heard on Hull on Estates, you can participate by leaving us a comment. Email us at hull.lawyers@gmail.com or you can visit us at our blog at estatelaw.hullandhull.com.
David Smith: So Chris we thought today what we would do is revisit the decision of the Supreme Court of Canada in Pecore and consider a recent case that considered in a somewhat novel way the approach to be taken by Pecore. And just generally, Chris, how did Pecore pronounce upon the law as it related to joint assets?
Chris Graham: Well the rule that comes out of Pecore is that transfers – the presumption of resulting trust applies to any transfer of assets given without consideration. So in the estates context, if say a parent gives any one of their children – let’s say, a cottage – well, the presumption is that a resulting trust attaches to that cottage in favour of the parent’s estate. So when the parent dies, the child has to rebut that presumption.
David Smith: Well that’s right. And the case was a bit of a departure from…there was some debate as to whether the presumption of advancement in fact applied between gifts between parents and children. And certainly the presumption of advancement still applies between parents and minor children. But as far as adult children go, the Court considered the usual plan and the usual purpose for holding joint assets, and concluded that in most situations, when a parent jointly holds with an adult child, there is some type of obligations that go along with that joint ownership. And so it seems that the Court basically substantiated the policy that adult children are presumed to hold assets in trust for their parents. And the Court also talked about what kind of evidence to consider in determining whether or not the presumption was rebutted. And what were those, Chris?
Chris Graham: Yeah, the Court ran over 5 forms of evidence. And these aren’t really exhaustive but they’re the kinds of evidence one would expect to be available to rebut the presumption, or at least to consider the presumption. We have evidence subsequent to the transfer, so the behaviour of the parties after the transfer. Maybe documents exchanged from the parent to the child in most cases after the transfer. Bank documents is the second category. It’s a pretty obvious one. Number three would be control and use of the funds in the account. Not only who controlled and used the funds but how those funds were used would be relevant. So if, you know, the daughter is the joint account holder and the daughter spends all of the money paying the parent’s bills or buying presents for the parents or if the daughter uses all of the money for her own family, that would be evidence the Court would look into. And the fifth category is the tax treatment of the joint accounts, which may be possibly one of the reasons to create the joint account is to save money on tax liability, to reduce tax liability. And if that’s the only reason then that would be evidence that wouldn’t help the child in trying to rebut the presumption.
David Smith: That’s right. And of course when you’re talking about trials and proving intention, the Court also makes reference to Section 13 of the Ontario Evidence Act which, of course, says that if you’re going to take the position that money was gifted to you…so if you’re going to try to rebut the presumption by saying that the money was held in a joint account as a gift, there’s the onus of corroborating your own evidence. So the adult child cannot simply say well Mom told me that I was to hold it in a joint account and that I would get it when she died. That will never be good enough because of the provisions of Section 13 and the fact that to rebut the presumption, you’ve got to touch on the various evidence that’s dealt with. And so in the cases that have considered Pecore in the years since that decision was made, we’ve seen the Court wrestle with this issue. And always on a case-by-case basis. And I guess what we need to stress, Chris, is that it’s not a hard and fast rule. Every case is determined on its own facts and if the facts of a specific case satisfy the judge that there was a rebuttal of the presumption, then that’s going to prevail. And certainly a useful illustration of the approach that the Court takes was dealt with in a recent case.
Chris Graham: Yeah, the case is Vitachak and Jeratano – I may be mispronouncing that but you can find that on Carswell at Carswell Ontario 336. And the E.T.R. is 49 E.T.R. (3d) 120. And so it’s an easy case to find. It’s a 2009 decision of Justice Matheson.
David Smith: And what was interesting in this case, I think…we’ll get into the facts in a minute…but what was interesting was that the judge did a very straightforward analysis using Pecore and then directly applying Pecore in terms of determining whether or not the presumption of resulting trust was rebutted in this case. And so as the facts were set out, there were numerous assets. Different types of assets held jointly with various children. And the Court had to decide whether or not there was a rebuttal of the presumption and how those assets should be treated. And what came out of the analysis, Chris?
Chris Graham: Okay. There were four assets in issue, transfers to different children. And the Court found differently with respect to the different assets. There was a mortgage granted to the daughter, so the daughter could buy property, buy a house. And the judge found that the presumption of resulting trust was rebutted with respect to that mortgage. The mortgage was actually a gift and the mortgage had been set up in an attempt to creditor-proof the property from the daughter’s estranged husband. And they were in divorce proceedings so the mother didn’t want the husband to be able to make a claim against the property. And that was the reason for the mortgage and that rebutted the presumption of resulting trust.
David Smith: And really some of the evidence was quite overwhelming with respect to that particular asset.
Chris Graham: It was. The mother event wrote a letter to the daughter saying the money is a genuine gift from the donor and does not ever have to be repaid. So that couldn’t really get any stronger than that except, I guess, one could argue the letter was hearsay or something like that. But that’s very powerful evidence in an estates litigation context.
David Smith: Right.
Chris Graham: You couldn’t really get stronger evidence than that other than a videotape I suppose.
David Smith: Yeah, exactly. I think that’s a good way to look at it. Any other kinds of assets that were dealt with?
Chris Graham: Yeah, there was $40,000 paid to one of the sons. And the son…it was in the context of a real estate transfer. And the $40,000 was off title though. The Land Transfer Tax Affidavit said the value was $1.00 and the judge found that the son was either not telling the truth or trying to avoid taxes. And therefore he failed to meet the onus to rebut the resulting trust.
David Smith: What was interesting, too, was part of the evidence that he relied upon was evidence of his co-beneficiaries that they were aware of the transfer and they stated that it was a gift. But it was interesting that the Court said quite clearly that evidence of beneficiaries of the estate who have the same interest as the recipient of the gift may not corroborate other beneficiaries, which was an interesting point.
Chris Graham: Yeah, actually that is almost a key principle that could be applied to a number of cases. Especially given that in almost all estates litigation, all of the beneficiaries are going to be the other respondents and very few other people would probably have any evidence to offer.
David Smith: That’s right. Now it’s really the last two assets that we’re dealing with, Chris, that I thought were interesting in this case because a differentiation was made between a joint bank account and a joint GIC. And that’s really the element of this case that has caught the most attention of estates practitioners. And there, the Court considered the nature of a joint bank account. And in particular there was a joint bank account between the mother and the daughter. And the daughter stated that the mother did most of the banking. And the Court had the evidence of the daughter that she said she was supposed to get everything in the account on her mother’s death. The problem, of course, is that even though the other beneficiaries supported the daughter who stated this, the Court reiterated that that did not constitute corroboration. In paragraph 47 of the decision, the Court stated as follows: “It is well known that elderly people have a joint bank account in order to make sure that debts are paid on time and to ease the pain of probate. The Courts have said that there is still an onus on the person trying to benefit because of this”. And so basically the Court used classic presumption of resulting trust analysis, considered the absence of evidence to rebut the presumption and concluded that the joint bank accounts were subject to the resulting trust. But, of course, the analysis of the GIC issue was different, wasn’t it Chris? I wonder if you can just talk about that.
Chris Graham: Yeah. So the testator created a GIC and it was a joint GIC. She, one of her daughters and her son were the joint owners. And the judge says that if one looks at the GIC, the documents “clearly state that the three are named on it. This is different than a bank account because it is basically a savings item and not used to pay ongoing debts and recalled that the joint account was used to pay ongoing debts. In my opinion (the judge says) the document speaks for itself and the two owners of it at the death of the testator were (and in this case) Nina and Joe. Joe and Nina owned the GIC”. So the judge distinguishes between a savings item, or an investment item and an item used to pay ongoing debts.
David Smith: Yeah and really interesting reasoning and of course, you know, the interesting point is that Pecore didn’t deal with GICs. And so were the case to be appealed and I don’t believe it was appealed. But were it to be appealed, the argument could not be made that this in some way offended Pecore on the facts because it’s not on all fours in the sense the GICs were never dealt with. And the Court in Pecore was never asked to consider whether a GIC by its inherent characteristic as a savings vehicle was somehow to be considered differently than other assets. I think the case was in some senses surprising because I think most members of the Estate Bar probably were of the view that the presumption of resulting trust was the starting point. And here, if the only evidence was the naming of three people as owners, in the absence in anything else, it’s difficult to see how that can in and of itself rebut the presumption. Although the interesting point is what you said, Chris, was that the judge viewed the purpose of the account. And I think basically what the judge was saying was why would you jointly hold an account in a GIC but for to benefit the other named recipients? The problem with that analysis, though, would be that one of the reasons you hold it jointly might be simply to avoid probate.
Chris Graham: Exactly. And I guess another way to look at it is that the way this testator had her finances organized, she had a joint account and a GIC. And one would expect that if she lived a year or two or three or four or whatever, and exhausted the funds in the joint account, eventually she would have cashed in the GIC and put that into the joint account.
David Smith: Right.
Chris Graham: So the judge did not look at this, her set-up, as one bundle of assets. The judge went through each asset distinctly and applied the presumption of resulting trust. And I think there’s very little evidence…there was very little evidence, at least in the judgment, that supported the rebuttal with respect to the GIC.
David Smith: I think what the case illustrates, and I see we’re almost out of time here, Chris. But what the case nicely illustrates is the thoughts that litigation counsel have to give when proceeding to Court to deal with a joint account issue which is, you’ve got to have corroboration, you’ve got to consider the nature of various different assets. Don’t think about the presumption as being a sort of blanket that applies to all assets equally. And it also highlights the fact that you never know what judges are gonna do and how judges are gonna determine cases. And it’s clear that in this case there was relatively small amounts at issue and one has to think that the costs of the litigation relative to the amounts in issue was pretty significant.
So that, I think, brings us to the end of this week’s discussion. Thanks so much for listening. Thank you, Chris, for podcasting with me today.
Chris Graham: It was a pleasure, David. I look forward to podcasting again with you soon.
David Smith: And we look forward to hearing from our listeners. Again you can send us an email at hull.lawyers@gmail.com and be sure to visit our blog at estatelaw.hullandhull.com where you’ll find even more information and discussion on today’s practice of estates and trusts law. We hope that you enjoyed the show. I’m David Smith.
Chris Graham: And I’m Chris Graham.
David Smith: Until next week, so long.
This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
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