Disjointed rights part two: What’s your client’s intention?

(February 2008) In part one, we discussed the first of two Ontario Court of Appeal cases (Pecore v. Pecore, 2005 CanLII31576 [ON C.A.]) involving joint accounts that the Supreme Court of Canada heard last May.

In part 2 we will be discussing Saylor v. Brooks, (2005 CanLII 39857 [ON C.A.]), which surprisingly came to a different decision than Pecore, despite having very similar facts.

The facts

The late Michael Madsen had three children: Mary Saylor, William Madsen and Patricia Brooks. Patricia Brooks was named as the sole executor of her father’s estate. Prior to Madsen’s death, he transferred all of his bank and investment accounts into joint names with his daughter, Patricia.

In December 1998, Madsen died and as a result, the assets in the joint accounts were transferred directly to Patricia in her capacity as the surviving joint owner of the accounts.

William Madsen and Mary Saylor sued their sister Patricia in her capacity as estate trustee, claiming that their father never intended the transfer of the joint accounts to be a gift to Patricia alone but rather intended to retain both full legal and beneficial ownership of the accounts.

The distinction is important because if Patricia is found to be the recipient of a gift made by her late father, then the assets in the joint accounts do not devolve to the estate and therefore belong to Patricia alone, by right of survivorship.

If, on the other hand, it’s determined that no gift was made at the time of transfer and that her name was put on the account simply as a matter of convenience, the assets in the joint account would form part of the estate and thus her siblings would be entitled to inherit their representative portions of the accounts, under their late father’s will.

The decision

The appeal court reviewed all the facts and evidence in the case, namely: The late Madsen controlled the accounts during his lifetime, he claimed all the income annually for tax purposes and Patricia, although a joint owner, never deposited any new money into the account and only withdrew money upon her father’s directions.

More disjointed rights

• There’s more to joint ownership than you think • The joint tenancy trap: Joint names no longer ensure ownership • Disjointed rights part one: Two similar cases, two different rulings • Disjointed rights part two: What’s the intention? • Disjointed rights part three: The Supreme Court decision

Back to disjointed rights

In addition, there was evidence that Madsen said that he might remove his daughter as a joint owner should he decide to remarry.

As a result, the majority concluded that “the father put the bank accounts in both Mrs. Brooks name and his own solely for convenience.” The court therefore found that at the time of transfer, the joint accounts were not intended as gifts but rather were intended to be included as part of the estate. As a result, the court ordered that the assets in the joint accounts had to be returned to the estate and divided in accordance with Madsen’s will.

Irreconcilable decisions

The result in Saylor is surprising given the Pecore decision, in which an opposite conclusion was reached with a very similar set of circumstances. Several of these inconsistencies were pointed out by Justice Feldman in her published minority dissenting opinion in the current case.

In Pecore, the court looked at the facts in an attempt to determine what the father’s true intention was at the time he transferred his assets into joint ownership with his daughter. The court found that the father was familiar with the concept of joint ownership and was cognizant of the fact that any assets he put into joint name would ultimately pass to his daughter, the joint owner. After all, he and his wife had held assets jointly that ultimately became his upon his wife’s death.

By contrast, in Saylor, despite similar evidence that Madsen had also held his investments in a joint account with his wife prior to her death when they devolved to him, and that he should have therefore known that the joint assets would similarly devolve to his daughter upon his death, the majority chose not to consider this as a determinative factor in this case.

Secondly, in Pecore, the father gave his daughter Paula a power of attorney over his assets — something the court took as evidence that he must not have been using the joint account with Paula “as a tool of convenience to give her signing access on the account,” but rather “… “… it showed that the father intended something more.” In Saylor, the father also gave Patricia a power of attorney, but the majority did not view the “giving of the power of attorney as a factor that suggested that the joint account was not set up merely as a tool of convenience.”

Finally, in Pecore, it was argued that despite the fact that the father maintained control over the investments and paid all the taxes, the court held that “[w]hile control can be consistent with an intention to retain ownership, it is also not inconsistent in this case with an intention to gift the assets. Hence, this factor was not determinative of [the father’s] actual intention.”

By contrast, in Saylor, one of the primary reasons cited by the majority to demonstrate that Mr. Madsen never intended to transfer a beneficial interest to Patricia is that he “remained in control of his finances and that he paid the taxes.”

The final say

Ultimately, it was up to the highest court to review these two cases to determine whether there is some way of reconciling these seemingly conflicting decisions. Read what the Supreme Court of Canada said about these cases here.

Jamie Golombek, CA, CPA, CFP, CLU, TEP is the vice-president, taxation & estate planning, at AIM Trimark Investments in Toronto. He can be reached at Jamie.Golombek@aimtrimark.com. This story originally appeared in Advisor’s Edge Report’s August 2006 edition.

(02/01/08)