Unintentionally extinguishing survivorship with joint accountsBy Doug Carroll | December 06 2016 09:28AM
Over the last few decades, joint ownership has grown in use as an estate planning and property succession tool involving adult children. The reason for distinguishing here between planning and succession is that joint ownership is a multi-faceted concept. Below the surface of the recorded title there can be much more going on, with beneficial rights frequently diverging from legal title. In particular, within families the law presumes that the addition of an adult child to title is not a beneficial transfer, though the child has the opportunity to rebut that.
One issue that may not be so well known is that joint ownership may operate differently with real estate as compared to bank or investment accounts. In the former case the real estate itself is the subject matter of the arrangement, whereas in the latter the practical focus (and value) is with the contents of the account.
While this may sound like splitting hairs, it can have some real world implications. If an otherwise beneficially entitled adult child is not careful in managing those joint arrangements, beneficial entitlement can be put at risk, possibly extinguishing survivorship rights.
Zeligs v. Janes, 2015 BCSC 7, supplemental reasons 2015 BCSC 525, upheld 2016 BCCA 280
Dorothy Burnett was 94 when her daughter Diana Janes (and husband) moved in with her. Within a year, Diana had been added as joint owner on the property, granted power of attorney by Dorothy, and made joint owner of Dorothy’s bank account.
In the following years, Diana borrowed against the property (for herself, not her mother) via line of credit and reverse mortgages. After Dorothy entered a nursing home at age 101, Diana sold the house for $2.7 million, retired the accumulated $832,643 in mortgage debt, and used the net proceeds to purchase a new home and investments for herself and her husband. On Dorothy’s death at age 103, as executor Diana paid the estate expenses and legacies to grandchildren, then split the residue between herself and her sister Barbara Zeligs, each receiving $63,783.
Barbara died a year after her mother, and her husband later commenced an action as executor of Barbara’s estate impugning many of Diana’s dealings with Dorothy’s affairs.
The trial judge found that though a resulting trust applied on the joint ownership of the home, Diana had rebutted that presumption as well as a claim of undue influence. The key evidence was a handwritten note the judge found expressed Dorothy’s true intention to add Diana as “joint owner as long as I live and full owner when I die.” He went on to discuss how joint ownership requires that there be four unities: title arising from same instrument, equality of interest, time of vesting, and right to possession. It was held that these unities remained intact despite the mortgages taken out by Diana, and even upon sale of the property since the proceeds were placed into the joint bank account.
However, “once they were withdrawn from the joint account for the sole benefit of [Diana and her husband], to the exclusion of Dorothy, the unity of possession was destroyed and the joint tenancy was severed.”
The court ordered half of the sale proceeds be paid to the credit of the estate. Furthermore, in supplemental reasons Diana was held to be in a conflict of interest when she used her authority under power of attorney to discharge the mortgages. She breached her fiduciary duty to Dorothy and was ordered to return $832,643 to the estate.
In the result, Diana’s actions destroyed her own right of survivorship that would have applied if the home had been held to Dorothy’s death, or even if the proceeds had remained in the joint account after Dorothy’s death.
- Joint ownership with an adult child can be more complicated than first apparent, with its application to bank and investment accounts being distinctive and potentially more complicated than in dealing with real estate.
- Even if there is identity of legal and beneficial interests, the continuing form and process of dealings with the property must be carefully managed. Specifically, if property is encumbered, disposed or converted in a way that is inconsistent with the unity of interests among the owners, current and future rights may be lost.
- Extra special care must be taken where the child/joint tenant also holds power of attorney over the parent’s property, especially after the parent has lost mental capacity.