Using joint ownership as an estate planning tool: getting it wrong

As a current TV ad points out, even kids know it’s wrong to take back something once you give it away.  Legally, though, it’s not that clear, especially when it comes to wills and joint ownership.  This is why a recently decided case from the BC Supreme Court, Wong v. Huang illustrates that you need to be careful about giving away your assets if what you are really trying to do is save money.

Mr. Wong is an elderly gentleman who, in 2006, gave away title to half of his house to his six year old grand-nephew.   Mr. Wong, who was 80 at the time, was estranged from his own children, and apparently wanted to leave his home to the boy so it would be a “family home”.  He also wanted to save his estate some money, thinking this would be a less expensive way of making the boy his heir.  Then, instead of living in the “family home” and keeping Mr. Wong company, the boy and his parents moved back toChina.

Poor Mr. Wong must have felt lonely, because he then allowed his care-giver and her husband to move into his house with him.  In 2009 he transferred the other half of the house to that couple, and also cut his grand-nephew out of his will.  In 2010 he tried to convince his grand-nephew’s parents to transfer the boy’s one-half interest back to him, or the pay him for that interest.  Negotiations failed and he sued the boy to get that one-half of the house back.

The boy’s family said the house was a gift, and he wasn’t giving it back.  Mr. Wong said he never meant an outright gift, and that something called a “resulting trust” had actually been created.  In other words, because the boy hadn’t paid anything for his half of the house, the law should presume that he held it “in trust” for Mr. Wong, and Mr. Wong should therefore have it back.

This case is particularly interesting because of recent developments in the law around wills.  It used to be that if a parent gave an asset to a child, regardless of the child’s age, there was a “presumption of advancement”.  That meant that the parent was presumed to have made a gift to the child (an advance on their inheritance, so to speak), which could not be taken back. This was a problem in DIY estate planning, where older folks tried to avoid probate fees by adding their children onto bank accounts and family homes as joint owners.  On the parent’s death, hey presto! one child was now the sole owner of that account or house.  And that child was never keen to give it back to the estate.  “Mom or Dad meant me to keep that for myself!”.  Mom or Dad, of course, isn’t available to clarify, so the fight was on.

Then along came a Supreme Court of Canada case called Pecore  in which the court decided that the presumption of advancement should no longer apply in the case of adult children (it still applies for children under the age of majority).  Instead, a form of trust called a resulting trust is created.  The adult child is now presumed to hold the asset “in trust” for the parent. It is presumed that the parent continues to be the real owner, unless there is evidence to “rebut the presumption”.  The person who has to do the rebutting is the adult child who holds legal title to the asset and who says it was a gift meant only for him.

The judge in Wong v. Huang gives a good explanation of how the resulting trust works and what is needed to successfully rebut the presumption that a trust exists.  In Mr. Wong’s case, there was sufficient evidence that it was not just a gratuitous gift, and the grand-nephew gets to keep his half of the house.  Mr. Wong’s estate may save the probate fees, but you can imagine how much his estate lost by going to court over this, and the house isn’t even going where he now wants it to go. So much for estate planning!

These fights usually arise after the parent has died.  The parent’s real intention has usually gone to the grave with them.  Due to lack of evidence, the presumption that the joint owner holds the house in trust for the estate can’t be rebutted, and asset comes back into the estate.  This is good for the other beneficiaries, but not so great if the parent really wanted the joint owner child to keep the asset.  It also means that probate tax gets paid on that asset (yes, even though legal title is in someone else’s name) because the beneficial interest (the real ownership) still belongs to the parent, due to the resulting trust.   So extra money gets spent on legal fees, the asset becomes part of the residue of the estate, and the estate still gets to pay the government the probate tax as well.

I would be interested to know what happens on Mr. Wong’s death, because his own children may still decide to contest his transfer of the other half interest of the house.  More unnecessary expenses for his estate, that could have been avoided had he gotten some decent advice.

Joint ownership is not the simple solution it may seem.  There are so many things that can go wrong.  Get some good legal advice.  Your heirs will thank you (actually they probably won’t, but if they end up fighting over your estate, they’ll certainly curse you).

About Maria Holman

I am a lawyer with over 28 years of experience in drawing up wills, trusts and estate plans, helping clients with probate and estate administrations and advising business owners and families about planning for the future. You can find me at Webster Hudson & Coombe LLP in Vancouver, BC
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One Response to Using joint ownership as an estate planning tool: getting it wrong

  1. practice law says:

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