Estate Planning and Joint Ownership – Recent Saskatchewan Case Illustrates how Convenience Can Backfire

A recent decision of the Saskatchewan Court of Queen’s Bench (SKQB) highlights the importance of understanding the possible consequences of using joint ownership in estate planning. The facts behind the case of Stubbings v Stubbings, 2018 SKQB 8 are not rare. Justice Layh states as much in the opening paragraph of his 21-page decision.

An elderly father, William, transferred the title to his condominium out of his sole name and into joint ownership with his son John. William completed this transfer in an attempt to avoid probate fees for his estate and to make his estate easier to manage after his death. Joint ownership of real property arranged in this way carries the right of survivorship. This means that upon the death of one joint owner, the other receives sole possession of the property. When William made the transfer into joint names he and John had a good relationship, and he did not request any payment from John.

Less than a year after the transfer, the relationship between the two broke down. William requested that John agree to give up his joint ownership in the condominium. John considered the ownership stake to have been an irrevocable gift and refused to return sole ownership to his father.

This case was ultimately decided on the intention of William to make a gift to John. Adding John to the title as a joint owner makes him equal to William in the eyes of the law on the day it happens. The intention of the transferor at the time the transfer is made is the primary factor the court will consider. Justice Layh emphasized that “the law does not recognize regret as a ground for undoing a formal legal act”. The Supreme Court of Canada has confirmed, in other cases, that the intention of the transferor at the time of the transfer will be determinative.

There were multiple pieces of evidence that William had changed his mind about the transfer. John and William had each inherited additional money from another relative, causing William to believe that John no longer needed the condo. William was angry that John had not visited him in the hospital after he took a bad fall. The list goes on. The important thing is that the court will not account for after-the-fact changes to the feelings of the original transferor. The intention at the time of the gift is what matters.

In Saskatchewan, S.156 of the Land Titles Act (“LTA”) states that no title or interest held in joint tenancy may be alienated without the agreement of ALL joint owners, or by court order.

William’s original transfer of the property into joint names was meant to simplify his estate and avoid probate fees. The practical outcome is that he had to sue his son to get the title back. Legal fees are one concern. The mental anguish such a situation can inflict on the parties involved is another.

In the end William lost the case to have his title returned to him. He had to repurchase it from his son for nearly $150.000.00.

Risks Associated with Joint Ownership

The Stubbings case raises many concerns about the use of joint tenancy as an estate planning tool. Assets may be exposed to several different risks when this mechanism is employed. It is important to understand what these risks are.

The transfer of property into joint names is irreversible without the consent of all joint owners. Relationships break down. People change. Unspoken ‘understandings’ may not be understood by all parties in the same manner.

Transferring property into joint names may expose the transferor to the creditors of the new joint owner. This could be the case if the new joint owner defaults on a loan, for instance. A jointly held property may be encumbered to satisfy a judgement.  Another major concern is the possibility that a joint owner experiences a divorce and assets must be divided.

There are numerous tax implications to consider prior to a transfer into joint names. The CRA may consider such a transfer to be a disposition of the property, which can trigger a requirement to pay capital gains tax. Additionally, if the property is your primary residence, there are specific capital gains exemptions that may be negated by such a transfer. It is vital to fully understand these implications before such an action is taken.

Finally, when planning an estate, most people wish to minimize any chance of the beneficiaries fighting over the estate after their death. Joint ownership with a right of survivorship effectively removes property from the estate. This can cause hurt feelings, confusion, and tension if all of the beneficiaries do not understand why such a mechanism was employed.

How Can These Issues Be Avoided?

The most important thing that you can do to avoid problems associated with transferring property into joint names for the purposes of estate planning is to seek professional advice. Capturing your intentions in writing and documenting how and why property is being transferred is extremely important.

The Estate Planning group at McKercher LLP can help guide you through the process. We have the expertise to identify and address potential problems associated with joint ownership. We would be happy to help.

About McKercher LLP:

McKercher LLP is one of Saskatchewan’s oldest and largest law firms with offices in Saskatoon and Regina. Our deep roots and client-first philosophy have made our firm rank in the top 5 in Saskatchewan by Canadian Lawyer magazine (2017). Integrity, experience and capacity provide innovative solutions for our clients’ diverse legal issues and complex business transactions.

This post is for information purposes only and should not be taken as legal opinions on any specific facts or circumstances.  Counsel should be consulted concerning your own situation and any specific legal questions you may have.