The transfer of property into joint ownership with an adult child is a common strategy used to avoid estate administration tax. Unfortunately, this estate planning technique can result in family disputes and litigation fees that exceed potential tax savings. The leading case addressing this
area of law has been cited in over five hundred decisions since its 2007 release, which suggests that joint ownership may not be the most desirable method of avoiding tax.
Estate administration tax is levied on the value of the estate, which includes all property owned by the deceased at the time of his or her death. The tax is payable when an executor applies to the court for a Certificate of Appointment of Estate Trustee with a Will (more commonly referred
to as “probate”). The Certificate of Appointment is often required by third parties, such as financial institutions and land registry offices, in order to release the deceased’s assets to the executor. A Certificate of Appointment can be relied upon as evidence of the executor’s authority, and the third party can safely release the assets without liability to other potential
claimants.
Where the deceased leaves a surviving spouse, property held in joint tenancy between the spouses is generally not subject to estate administration tax because the property automatically passes to the surviving spouse by right of survivorship. However, a presumption of resulting trust arises when property is transferred to joint ownership with an adult child. This is a legal presumption that the child is holding the property in trust for the parent. Therefore, on the death of the parent the whole of the property is an asset of his/her estate and is subject to the Estate administration tax. The presumption is rebuttable if the child can prove, based on sufficient evidence, that the parent intended the transfer to be a gift to the child.
Note that this presumption arises automatically upon the transfer. Therefore, evidence of the parent’s intention at the time of the transfer is paramount if the child intends to rebut the presumption. Courts have examined the control and use of the property subsequent to the
transfer, the tax treatment of the property and documents relating to the transfer in an effort to determine the intention of the testator. Searching for written declarations of intention, requesting documentation from financial institutions, and identifying the individuals who made deposits or withdrawals from a jointly held account are common methods to determine the parent’s intention.
Judges have placed considerable weight upon evidence provided by professional advisors, largely due to the fact that an advisor has no pecuniary interest in the outcome of the litigation. In Sawdon Estate v. Watch Tower Bible and Tract Society of Canada (2014 ONCA 101) the
testimony of a financial advisor led to a finding that the presumption of resulting trust had been rebutted. That financial advisor was able to recall a conversation she had with her client, the parent, concerning a jointly held account wherein the client expressed an intention to gift the account to his adult sons. In Laski v. Laski (2016 ONCA 337), the testator advised his lawyer of his intention to gift funds in a jointly held account to his daughter upon his death. The lawyer recommended her client include a provision confirming this intention in his Will, and was able to corroborate her oral testimony with detailed notes of the conversation. The court held that the presumption of resulting trust was rebutted by the overwhelming evidence of the testator’s intention to gift his interest in the account.
The avoidance of tax is often a primary consideration in estate planning. However, the transfer of property into joint ownership with an adult child in order to avoid estate administration tax may not be as effective as one may hope due to the presumption of resulting trust. The weight that Courts tend to place upon evidence provided by professional advisors demonstrates a unique opportunity to assist clients with the preservation of their estate, the disposition of assets in accordance with their true intentions and, most importantly, maintain family harmony during a
difficult time.
Written by: Jessica Kristensen, Miller Thomson
GEPC 