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Using Joint Tenancy as a Device for Estate Planning May Lead to Litigation

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Vancouver estate lawyers often use joint tenancy as a form of estate planning in BC, particularly within a family context between parents and children. However, as reams of Vancouver litigation demonstrate, joint tenancy as an estate planning device can create unexpected problems, particularly when the interests of people or entities outside the family context are affected. The legal and beneficial interests that arise as a result of joint property ownership within a family for estate planning purposes can impact the rights of third parties such as creditors, thereby giving rise to litigation with unintended outcomes.

Vancouver litigation arises out of transfer for estate planning purposes

Our Vancouver estate litigation team recently discussed the facts in Petrick (Trustee) v. Petrick, 2019 BCSC 1319, which involved a condominium purchased in 2006, with title to the property registered jointly in the names of Mr. Petrick and his elderly mother, Ms. Chilton. Both were jointly and severally liable on the mortgage. Ms. Chilton lived in the property and was the sole occupant. Mr. Petrick never lived there. Both Ms. Chilton and Mr. Petrick understood that the condo was registered as it was for estate planning purposes to avoid the property being subject to probate on her death. Unfortunately for them both, in the years that followed, Mr. Petrick’s business began to struggle and he experienced financial difficulties. In 2014, when it became apparent that he and his company were in very serious financial trouble, Ms. Chilton requested that he transfer his interest in the condominium to her, and he did so (the “2014 Transfer”).

Was the son’s transfer of his interest to his mother fraudulent?

As our Vancouver estate lawyers explained in an earlier post, Justice Francis found that Mr. Petrick acquired both a beneficial interest and a legal interest in the property in 2006. He was not a trustee but rather a true joint tenant with a present beneficial interest and a right of survivorship. Given the court’s determination of the threshold issue that Mr. Petrick was a true joint tenant, the next question was whether the 2014 Transfer of his interest in the property to Ms. Chilton constituted a fraudulent conveyance. Pursuant to s. 1 of the Fraudulent Conveyance Act, R.S.B.C. 1996, c. 163, a disposition of property, if made to delay, hinder or defraud creditors or others of their just and lawful remedies, will be void and of no effect against those persons.

Purpose of transfer was to put it out of the reach of the son’s creditors

In order to meet the intent requirement under BC’s Fraudulent Conveyance Act, all that had to be shown was that Mr. Petrick intended to put his assets out of the reach of his creditors. No further dishonest or morally blameworthy intent is required. The requisite intent came from Mr. Petrick’s own evidence as to the reason for the 2014 Transfer. Mr. Petrick admitted in his affidavit that the reason his interest in the property was transferred was because he was in serious financial trouble. No consideration was paid for the 2014 Transfer. The timing of the 2014 Transfer of Mr. Petrick’s interest in the property to Ms. Chilton was also significant, it being registered the day before an application for judgment against Mr. Petrick for over $2.3 million. There could be no conclusion other than that the 2014 Transfer was done with the intent of putting the property out of reach of Mr. Petrick’s creditors. Since the purpose of the 2014 Transfer was to defeat the legitimate claims of Mr. Petrick’s creditors, the transfer of the Property was void and of no effect as against the creditors of Mr. Petrick.

What does that mean for Ms. Chilton?

The 2014 Transfer of the interest in title to real property from Mr. Petrick to his mother was declared void pursuant to the Fraudulent Conveyance Act. If Mr. Petrick had not made the 2014 Transfer, his later bankruptcy would have served to sever the joint tenancy, making him an owner of one half of the property as a tenant in common. As such, it was determined that the appropriate remedy in this case was to order that title to his one-half interest in the property be conveyed to the trustee in bankruptcy. Ms. Chilton was entitled to reside in the property for as long as she wished. When she ceased to occupy the property, or on her death if she occupied the property for the remainder of her life, the property was to be sold and the net proceeds of sale of the property be divided equally between the son’s bankruptcy trustee and Ms. Chilton (or the personal representative of her estate as the case may be).

Bottom line: Joint tenancy may give rise to unintended results

As the Petrick case demonstrates, joint tenancy as an estate planning device can create unexpected problems, particularly when the interests of people or entities outside the family context are affected. Vancouver estate litigation may arise to determine the true interest held by the joint tenants, and in some cases, the result may be that a “best-laid plan” to avoid probate fees on death leaves property open to a claim by creditors of a joint tenant.

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