There are a variety of legal approaches that parties can use to avoid paying fees associated with property transfers, typically as a result of the death of a loved one. One such approach is using joint tenancy as an estate planning mechanism to avoid the payment of probate fees. However, this method does not come without its own risks and considerations, as demonstrated by a recent decision from the Ontario Superior Court of Justice.
Joint Tenancy or Tenants in Common?
An important concept discussed in the case of Jackson v. Rosenberg is that of joint tenancy and its relation to tenancy in common, which are two distinct forms of property ownership.
In a joint tenancy, co-owners share an undivided interest in the property, and upon the death of one owner, their share automatically passes to the surviving joint tenant(s). This process is known as the right of survivorship, ensuring a seamless transfer of ownership without the need for probate.
On the other hand, a tenancy in common involves individual ownership of specific, separate shares within the property. Each tenant in common is free to transfer their share independently, without the constraint of the right of survivorship. This structure allows for greater flexibility in estate planning, as tenants in common can distribute their ownership as they see fit among heirs or third parties.
Parties Become Joint Tenants
In Jackson v. Rosenberg, two individuals were registered as joint tenants to avoid paying the Estate Administration Tax. Still, they subsequently got into a dispute over the ownership of the property. Mr. Jackson was Ms. Rosenberg’s uncle’s longtime partner. When the uncle passed away, Mr. Jackson was named as the sole beneficiary of his estate. Mr. Jackson purchased the property in question (the “Port Hope Property”) with the proceeds from the sale of the assets he acquired as part of the uncle’s will. For a time, Mr. Jackson was the sole registered and beneficial owner of the Port Hope Property.
Mr. Jackson eventually transferred the property from himself as sole owner to himself and Ms. Rosenberg as joint tenants, as he intended to leave whatever value remained in the Port Hope Property to Ms. Rosenberg upon his death. Had he used a will to bequeath his interest in the property, Ms. Rosenberg would have had to pay probate fees, so he chose to approach the property transfer through joint tenancy. He also signed a document that indicated that the transfer was a “gift” made for nominal consideration.
After several years, Ms. Rosenberg and her husband informed Mr. Jackson that they intended to upgrade the house for its eventual sale during his lifetime since Ms. Rosenberg had the right to do so as a joint tenant. This was not what Mr. Jackson intended, and he became worried that he would be kicked out of his home. Soon after, Mr. Jackson took steps to sever the joint tenancy. When the matter came before the Court, the Court was asked to determine whether Mr. Jackson’s transfer of the property was a resulting trust rather than a gift, and whether the beneficial ownership would be retained by Mr. Jackson.
Judge Finds Intent to Gift Right of Survivorship, Not Beneficial Interest
The Court found that the evidence before it clearly indicated that Mr. Jackson intended to gift the right of survivorship to Ms. Rosenberg and that there was no intent to have her control the property prior to his death. The judge examined the law on resulting trusts to determine the legal effect of this gift and noted that due to the gratuitous transfer, the presumption of resulting trust applies, therefore, the onus was on Ms. Rosenberg to demonstrate that this transfer was a gift.
The Court found that the facts supported this presumption as Mr. Jackson even signed a document that evidenced his intent during this transfer. However, the judge specified that Mr. Jackson intended to gift the right of survivorship to Ms. Rosenberg, and not to give her control of the property. This intention did not affect the status of the gift, which means the gift was made and cannot be revoked.
However, there is the caveat that the right of survivorship is “a gift of whatever remains at the death of the transferor, not what existed at the date of the transfer.” In other words, Mr. Jackson had the right to do as he pleased with the property during his lifetime, and Ms. Rosenberg had the right to whatever was left. The judge used the example of having a right of survivorship in a joint account; the surviving individual has the right to receive the funds upon death, but the other individual has the right to drain the account beforehand.
Case Serves as “Cautionary Tale”
Although Mr. Jackson could not revoke the gift, he could still sever the joint tenancy, as it was his inherent power to do so. The judge found that Mr. Jackson severed the joint tenancy when he transferred his share of the joint tenancy to himself, ending Ms. Rosenberg’s right of survivorship.
As warned by the judge, this case serves as a “cautionary tale” of using this property title tactic. The parties paid more in legal fees fighting a dispute than the amount they would have saved on probate fees. As such, parties must weigh the potential risks and benefits before entering into a joint tenancy, especially when it is used as an estate planning strategy.
Contact Bader Law in Mississauga for Estate Planning Advice and Drafting Assistance
The trusted estate planning lawyers at Bader Law can help with a wide range of wills and estate matters, including drafting a will, updating a will, as well as probate and estate administration, to ensure that your loved ones are cared for in the event of your passing. Our compassionate team will ensure your unique needs are met and a strategic estate plan is in place so that you can put your mind at ease. Contact us by phone at (289) 652-9092 or reach out to us online to learn how we can assist you with your estate plan.