Canada: Sawdon Estate V. Sawdon – The Beneficial Ownership Of Funds In A Joint Account

Introducton

In Sawdon Estate v. Sawdon, 2014 ONCA 101 ("Sawdon"), the Court of Appeal for Ontario was tasked with determining, inter alia, to whom the funds held in several joint accounts belonged—the children of Arthur Sawdon ("Mr. Sawdon"), the deceased, or the Watch Tower Bible Tract Society of Canada (the "Charity"), the residuary beneficiary of Mr. Sawdon's estate.  The matter was first heard by Justice Leonard Ricchetti of the Ontario Superior Court of Justice.   In a decision dated July 23, 2012, Ricchetti J. considered and applied the Supreme Court of Canada's 2007 decision in Pecore v. Pecore, 2007 SCC 17 ("Pecore") and ultimately held in favour of Mr. Sawdon's children.  On appeal, the Court of Appeal for Ontario this year upheld Ricchetti J.'s decision.

Background Facts

Mr. Sawdon died in March 2007.  His wife had predeceased him and he was survived by five children.  Beginning in 2004, Mr. Sawdon transferred bank accounts into joint names with two of his sons, Wayne and Stephen.  In June 2004, Mr. Sawdon specifically expressed to one of his bank representatives, Gladys Fisher ("Ms. Fisher"), that he wanted certain accounts to be held jointly among him, Wayne and Stephen and that Wayne and Stephen "knew what to do with the money" upon his passing (i.e. share it equally among all their siblings).  Due in particular to past experiences dealing with bank accounts following his wife's passing, Mr. Sawdon explained to Ms. Fisher that he wanted his children to have the funds in the joint bank accounts without having to go through probate of the actual Will.  Mr. Sawdon continued to transfer his bank accounts into joint names in this manner until July 2006.  At the time of his death, the funds in the joint accounts totalled just over $1 million.

In 2006, Mr. Sawdon met with his lawyer to revise his then existing Will (which had been executed in 2004).  As a result of the change to his Will, the Charity was named as the beneficiary of the residue of Mr. Sawdon's estate as well as the beneficiary of Mr. Sawdon's shares in a corporation known as "Sawdon Holdings."  Mr. Sawdon's lawyer, Daniel Pole ("Mr. Pole"), was not aware of Mr. Sawdon's joint accounts at the time he revised Mr. Sawdon's Wills.  However, Mr. Pole had at that time (and in and around the same time period) advised Mr. Sawdon that he recommended that Wayne and Stephen execute a declaration of trust if Mr. Sawdon did not intend for the money in the joint accounts to pass directly to the surviving account holders upon his death.  At no time was such a declaration of trust prepared or executed.  Moreover, Mr. Pole did not inform Mr. Sawdon that he was associated with the Charity and had acted from time to time as its counsel.

Following Mr. Sawdon's passing, his children argued that the funds held in the joint accounts had been gifted to them and that these funds accordingly passed to them outside of Mr. Sawdon's estate.  The Charity, on the other hand, argued that the change in registration of the joint accounts had never constituted a gift of the beneficial interest in the joint bank accounts, and that the accounts accordingly formed part of the residue of Mr. Sawdon's estate.

Superior Court Decision

Ricchetti J. considered and applied Pecore, which established that there is a rebuttable presumption of a resulting trust in favour a deceased parent's estate in cases involving gratuitous transfers between a parent and an adult child.  In this case, there had been a gratuitous transfer of an interest in the bank accounts from Mr. Sawdon to his sons, Wayne and Stephen.  The question was whether, based on the facts of the present case, the presumption in favour of a resulting trust had been adequately rebutted.  Ricchetti J. determined that it had.  He based his conclusion on three key facts:

  1. Mr. Sawdon's experience dealing with joint accounts and accounts that were not jointly held following his wife's death;
  2. Mr. Sawdon told Mr. Pole that he was considering transferring his bank accounts into joint name with Wayne and Stephen and was then advised that he should/would have a declaration of trust prepared and signed in order to avoid the funds in the accounts going directly to Wayne and Stephen following his passing.  In spite of Mr. Pole's advice, Mr. Sawdon proceeded to transfer the bank accounts into joint names; and
  3. Ms. Fisher's evidence clearly established that she had discussed the nature of a joint account with a right of survivorship with Mr. Sawdon and presented him with the option of a joint account without a right of survivorship.  Mr. Sawdon understood the distinction between the two types of accounts, but nonetheless chose to proceed to transfer his bank accounts into joint names with Wayne and Stephen, with a right of survivorship.

Ricchetti J. held that the funds in the joint bank accounts belonged equally to Mr. Sawdon's children based on one of either two lines of reasoning.  Either Mr. Sawdon made a gift of the beneficial interest in the bank accounts to his children, with Wayne and Stephen being used to facilitate this transfer, or Mr. Sawdon made a gift of the legal and beneficial interest to Wayne and Stephen, but they were to hold whatever money they ultimately received from the bank accounts in trust for their siblings.  In either case, the result was the same, in that the funds in the joint accounts did not form part of Mr. Sawdon's estate and the Charity could accordingly not establish any claim to them.

Court of Appeal Decision

Gillese J.A. wrote the Court of Appeal's decision in Sawdon.  She agreed with the Ricchetti J. that Mr. Sawdon's children were beneficially entitled to the funds in the joint bank accounts, but arrived at her conclusion based on a differing legal analysis.  In Gillese J.A.'s view, Mr. Sawdon established a trust when he transferred the bank accounts into joint names with Wayne and Stephen.  The trust was established based on the understanding that Wayne and Stephen would, as trustees, distribute the funds then remaining in the accounts evenly among them and their siblings.  In other words, Mr. Sawdon "made an immediate inter vivos gift of the beneficial right of survivorship to [his children]."  As such, from the time that the joint accounts were opened, the legal title holders (being Mr. Sawdon, Wayne and Stephen) held the beneficial right of survivorship in trust for Mr. Sawdon's children, in equal shares.

Gillese J.A. distinguished her reasoning from Ricchetti J.'s in two important respects:

  1. Mr. Sawdon's children did not have a beneficial interest in the funds held in the joint bank accounts at the time the joint accounts were created, but rather, of the beneficial right of survivorship to the joint accounts; and
  2. It is not possible to find that a gift of the beneficial right of survivorship had been made and to also find that the recipient of the gift held it in trust for others.  The proper analysis in such circumstances is based on the law of trusts, such that legal title to the accounts passed to Wayne and Stephen, as trustees for their remaining siblings.  This negates a gifting arrangement or analysis.

Key Take-Aways from Sawdon

In Sawdon, the courts were forced to engage in an ex-post-facto examination of Mr. Sawdon's intentions at the time he transferred his bank accounts into joint names with Wayne and Stephen.  Although the credibility and reliability of Mr. Pole's evidence was brought into question by Ricchetti J., in reading the trial and appellate decisions it is difficult to not think that the matter would likely not have been litigated at all had Mr. Sawdon, Wayne and Stephen followed Mr. Pole's initial advice and executed a straightforward declaration of trust with respect to the beneficial ownership of the funds held in the joint accounts.  Such a trust declaration would have made it clear that the accounts did not form part of Mr. Sawdon's estate (meaning the Charity would have had no claim to them).  The trust declaration would have also established that the facts of the case were generally in line with Gillese J.A.'s ultimate determination.  Of course, if the bank accounts had been a brokerage account there would have been a disposition for tax purposes.

Sawdon accordingly serves as an important reminder to lawyers in the area of estate planning to advise clients about the potential consequences of transferring funds into accounts jointly held with one or more of their children or family members.  Should a client, like Mr. Sawdon, wish to transfer funds into a joint account for the purposes of avoiding probate, in keeping with the decision in Sawdon, it appears that a trust of the right of survivorship may now be a possibility to consider with him or with her.  In any event, any such trust should be properly documented, leaving little doubt as to the intention of the transferor.  Nonetheless, the question of what rights and obligations the joint account holders would have with respect to the funds held in the joint accounts during the transferor's lifetime remains an open question.

In circumstances involving cross-border estate planning, it appears to also be an open question as to how the United States would regard and treat the transfer of funds held by a U.S. citizen in a Canadian account into joint names.  If, as Ricchetti J. had reasoned in his decision, the transfer would, in any way, be considered to constitute a gift, then U.S. tax advice should be obtained as to whether U.S. gift tax disclosure would be required.  U.S. tax and legal advice should also be obtained if a trust of the right of survivorship is contemplated, in order to determine whether federal gift tax would apply to a U.S. citizen transferor and what, if any, ongoing reporting obligations a U.S. citizen transferee may face.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Rahul Sharma
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions