Joint tenancy is a popular form of estate planning in BC. A common example of using joint tenancy for estate planning purposes is when a parent, during their lifetime, transfers an interest in their home to their adult child. Registering title to the property in joint tenancy with the intended beneficiary of the property is done to keep the property from forming part of the parent’s estate on death, without the necessity of an application for probate and payment of probate fees. However, questions of true ownership and intention can arise, which may lead to litigation during the parent’s lifetime or after their death. In Petrick (Trustee) v. Petrick, 2019 BCSC 1319, the BC court was called upon to decipher the nature of a property arrangement between a mother and her son. The mother unsuccessfully argued that the property was held on resulting trust by the son, such that it was not accessible by the son’s creditors.
Mother and son registered on title as joint tenants
The property in question in Petrick was a residential strata condominium in New Westminster (the “Property”). The Property was purchased in 2006 for $314,900 by Ms. Chilton and her adult son, Mr. Petrick. At the time of purchase, Ms. Chilton and Mr. Petrick were registered on title as joint tenants. Ms. Chilton paid the deposit and down payment for the purchase of the Property using the proceeds of sale of her prior home in Williams Lake. A $140,000 mortgage was taken out on the property to pay the balance of the purchase price. Ms. Chilton and Mr. Petrick were co-borrowers on the mortgage. While there was evidence that some mortgage payments were made by Mr. Petrick in the following years, the bulk of the mortgage payments and other costs associated with the Property were paid by Ms. Chilton. Ms. Chilton lived in the Property from the time of its purchase and she was the sole occupant. Mr. Petrick never lived there.
Son’s financial trouble prompts conveyance
Mr. Petrick began to have serious financial difficulties in 2013. Upon learning of his financial troubles, Ms. Chilton requested that Mr. Petrick convey his registered interest in the Property to her. On July 17, 2014, in the midst of foreclosure proceedings brought by his creditor, Mr. Petrick transferred his interest in the Property to Ms. Chilton (the “2014 Transfer”). Mr. Petrick later went through a bankruptcy. The trustee in bankruptcy brought an application seeking a declaration that the 2014 Transfer of the interest in title to real property from Mr. Petrick to his mother was void pursuant to the Fraudulent Conveyance Act, R.S.B.C. 1996, c. 163. In other words, it was alleged that the transfer was done with the intent of putting the Property out of reach of Mr. Petrick’s creditors.
Mother alleges the Property was subject to a resulting trust
A resulting trust arises when title to property is in one person’s name, but that person, because he or she is a fiduciary or gave no value for the property, is under an obligation to return it to the original title owner. If a person holds an interest in property that is subject to a resulting trust, that person does not have a beneficial interest in the property; rather, the title holder is a trustee and the trustee cannot take the property for his or her own benefit, and nor can the trustee’s creditors. Ms. Chilton argued that the 2006 transfer was gratuitous, and that Mr. Petrick held his legal interest in the Property as a bare trustee for her.
Was the property held on resulting trust?
In order to consider this argument, it was necessary for Madam Justice Francis to review the law of joint tenancy as it applies to property arrangements between parents and adult children:
- A joint tenancy is defined by the confluence of the four unities: unity of title, interest, time and possession (see here for our Vancouver estate litigation lawyers’ discussion of those concepts).
- The right of survivorship is the principal distinguishing characteristic of joint tenancy. (Our Vancouver estate litigation team explained how the right of survivorship operates in a previous post).
- Not all jointly owned property is subject to a true joint tenancy. There are a number of legal presumptions available to assist in determining the beneficial interests of joint title holders.
- With respect to a gratuitous transfer of property from a parent to an adult child, the presumption of resulting trust applies. (See here for an example of the application of the presumption in estate litigation).
- It is not necessary to rely on the presumption of resulting trust where the actual intention of the transferor at the time of transfer is clear on the evidence.
No resulting trust because value was given by transferee
The argument that the Property was held on resulting trust because Justice Francis found that Ms. Chilton did not gratuitously make Mr. Petrick a joint tenant. Mr. Petrick was a co-borrower under the mortgage. The pledging of credit exposed Mr. Petrick to risk and Mr. Petrick remained jointly and severally liable on the mortgage debt. Because Mr. Petrick gave value for his interest in the Property, it was not a gratuitous transfer and the presumption of resulting trust did not apply.
Actual intention of transferor belied resulting trust
Even if Mr. Petrick had not provided value for his interest in the Property, the evidence simply did not support the argument that Ms. Chilton intended her son to hold the Property on a resulting trust for her estate. She registered title to the property jointly in her and Mr. Petrick’s names for estate planning purposes. She intended for Mr. Petrick to have a right of survivorship in the Property. If Mr. Petrick were holding the Property on a resulting trust for Ms. Chilton’s estate, the Property would fall into her estate on her death and be subject to probate – precisely the result that she sought to avoid by putting her son on title as joint tenant.
Since Mr. Petrick had both a legal and beneficial interest, was the 2014 transfer of fraudulent? Check back for our Vancouver estate lawyers’ discussion of the result and the risks of using joint tenancy for estate planning purposes.