Happy families are all alike, every unhappy family is unhappy in its own way"
wrote Tolstoy at the beginning of Anna Karenina. This quote was used poignantly
by Honourable Madam Justice Rosalie Abella in her written decision, released
this week in one of two Supreme Court tax cases.
Both cases involved bitter estate disputes, causing Madam Justice Abella to
add that such "unhappiness often finds its painful way into a courtroom."
At issue in both cases was the true meaning of "joint ownership" of
investment accounts and the true intentions of the original owners when the
joint accounts were established.
Most Canadians don't think twice about opening a joint account or putting
assets into what's technically called joint tenancy with rights of survivorship.
Joint ownership is a common way to hold investment assets and is most often used
to avoid probate taxes. It's also used for convenience purposes, so that any
joint owner can deal with the account during their lifetimes and upon death, the
assets go to the surviving owner.
Unfortunately, the question of "true intent" often arises with joint accounts
after the death of the "transferor" -- the person putting the account into joint
names with someone else. Did the transferor intend to actually make a gift of
the monies? Or was it done for other reasons, such as probate avoidance or ease
of management and administration?
In the first case, Edwin Hughes, father of Paula Pecore, put nearly
$1-million in mutual funds into joint ownership with Paula. Upon Mr. Hughes's
death, the assets in the joint account were transferred to Paula's name. Two
years later, Paula and her husband, Michael Pecore, separated and in the course
of the divorce Michael tried to go after the assets in the joint account since
he was a beneficiary under his exfather- in-law's will. His argument was the
transfer of the joint account into Paula's name was not a true gift since it was
done "for probate purposes only."
The lower courts had disagreed and found that Paula was the legitimate owner
of the account.
The second case involved Michael Madsen, who named only one of his three
children, Patricia Brooks, as the joint owner of his investment accounts. After
Michael's death, Patricia's brother and sister sued and claimed that their late
father only named Patricia on the account "for convenience purposes" and no true
gift was made. They argued the monies in the joint accounts should be
distributed in accordance with the will, with both siblings receiving a portion.
The lower courts agreed.
The Supreme Court of Canada saw no reason to reverse either of these
decisions and decided that the onus falls on the surviving joint account holder
to prove that the transferor intended to make a gift.
Factors that are considered to determine intent include: the wording in
financial documents used to open the account, control and use of the funds while
the transferor was alive, whether a power of attorney exists and who paid the
taxes on the account.
In the first case, the higher court found that Mr. Hughes intended that Paula
alone receive the funds in the account after his death. In the second case, the
court found that Mr. Madsen did not intend to make a gift to Patricia, and the
proceeds of the account should be divided. -
Jamie Golombek, CA, CPA, CFP, CLU,
TEP is vice-president, taxation and estate planning, at AIM Trimark Investments