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The risk of joint ownership of property as an estate planning tool

It is not uncommon for a parent to decide to hold property in joint tenancy with one or more adult children in joint tenancy as an estate planning tool. A parent may transfer title to a property into joint tenancy with a child with the intention that the child will become the sole owner of the property on the parent’s death, thereby avoiding probate fees associated with the property being held as part of a joint estate. However, such plans may be thwarted, to the detriment of the parent, in the event the child becomes a judgment debtor or bankrupt during the life of the parent. Petrick (Trustee) v. Petrick and Chilton, 2019 BCSC 1319 is a cautionary tale on this point.

Ms. Chilton sold her previous home and used the proceeds of sale and new mortgage proceeds to purchase a new condominium. She and her son were named as joint tenants on the new property. The son provided no funds to purchase the new property, although he was a co-mortgagor on the mortgage. While only Ms. Chilton lived in the condominium, Mr. Petrick represented on a credit application several years after the purchase that he helped his mother with the mortgage and was a co-owner of the property.

The evidence was that Ms. Chilton understood that if she died with the property in her name alone, the property could not be transferred to her beneficiaries without a grant of probate and payment of probate fees. She further understood that if her son was a joint tenant, the property could be transferred without being part of her estate and probate fees would be avoided. It was her intention that her son would inherit the property.

All that would have been fine but, for the fact that Mr. Petrick ran into financial difficulties a few years later. On learning of those difficulties, Ms. Chilton requested that her son convey his registered interest to her and he did so. One of Mr. Petrick’s creditors initially commenced an action alleging that the transfer to Ms. Chilton was a fraudulent conveyance. That action was taken over by Mr. Petrick’s trustee in bankruptcy when he became bankrupt.

The trustee sought to unwind the transfer as a fraudulent conveyance and to take title to a one half interest in the property. Ms. Chilton attempted to argue at trial that during the period of time her son was registered on title he was merely a bare trustee for her and that his transfer to her was not a transfer of any beneficial interest.

The court, in examining the relevant law, found there to be three potential scenarios where property is held in joint tenancy:

  • There is a true joint tenancy in which the joint tenants are each beneficial owners with a right of survivorship;
  • There is a resulting trust where only one of the joint tenants has a beneficial interest in the property;
  • There is a “gift of the right of survivorship” where there is no beneficial ownership during the lifetime of the donor of the gift, but that if the donee survives the donor, the donee will receive the property by right of survivorship.

The court was called upon to decide how Mr. Petrick held his interest. Was it held on a resulting trust basis for his mother, and thus the interest would not vest in the trustee in bankruptcy for the benefit of Mr. Petrick’s creditor? Alternatively, did he hold a beneficial interest, such that the later conveyance of his interest to his mother when he was in financial difficulty, was a fraudulent conveyance, allowing the trustee to unwind the conveyance and claim a half interest in the property?

The usual presumption of resulting trust, where there is a gratuitous transfer from a parent to an adult child, might have applied, but for the fact that Mr. Petrick had pledged his credit by becoming a co-mortgagor and thus liable under the mortgage. The court found that it was also more than likely Mr. Petrick had made payments on the mortgage. Ultimately, the court concluded Mr. Petrick was not a bare trustee, that he had a beneficial interest in the property.

Having found that Mr. Petrick had a beneficial interest, it was a straightforward analysis to find that the transfer was a fraudulent conveyance as Mr. Petrick was in financial difficulty at the time of the transfer.

As to the remedy, the trustee was entitled to be registered as a co-owner of the property. The Court was also prepared to make an order under the Partition of Property Act allowing for the sale of the property. The trustee, however, was prepared to allow Ms. Chilton to reside in the property as long as she wished, but that in the event of her death, or should she leave the property, the property was to be sold and the net sales proceeds divided equally between the trustee and Ms. Chilton. In another case, a trustee might not be so generous and might seek to have a property sold and the proceeds divided between the trustee and the parent without delay.

A parent who is considering having one or more children as joint tenants on their property as an estate planning tool should carefully consider such step. Their action may simply be assisting a child’s future creditors to recovery on their claim and jeopardizing the parent’s interest in, and continued occupancy of, the property.

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