In two recent blog posts, we discussed the issues of using joint tenancies for estate planning. In Amanda Winters' post she noted that joint tenancies are difficult to revoke if you change your mind. Emily Clough's post discussed a case where a claim for resulting trust failed.
A transfer of property to joint tenancy may be declared void if the transfer was made due to undue influence. At common law, a presumption of undue influence is established where:
- The person receiving the gift had the opportunity to dominate or influence the person giving the gift; and
- The transaction disadvantaged the giver.
The onus then moves to the defendant to rebut the presumption of undue influence. The defendant must demonstrate that the transaction was entered into as a result of full free and informed thought.
In the recent case of Cowper-Smith v. Morgan, 2015 BCSC 1170 the plaintiff successfully set aside a joint tenancy on the basis of undue influence. Interestingly, the individual who was unduly influenced had received independent legal advice regarding the transfer of the property into joint names.
The facts of the case are summarized as:
- Elizabeth and Arthur had three children: Gloria, Max and Nathan.
- Arthur passed away in 1992. He was survived by Elizabeth and the children, as well as his brother David.
- In 2001, David contacted a Lawyer on Elizabeth's behalf. David stated that he suggested to Elizabeth that she change her will to give everything to Gloria, and have Gloria give some to her brothers if "reasonable".
- Gloria and Elizabeth then attended the Lawyer's office to execute a transfer of Elizabeth's house into joint tenancy with Gloria. The Lawyer later met with Elizabeth alone. Elizabeth told the Lawyer that she wanted the house in joint tenancy with Gloria and the balance of the estate divided equally between the children.
- A few weeks later, the Lawyer received a phone call from Gloria, advising that Elizabeth wanted all her investments held in joint tenancy with Gloria. The Lawyer again met with Elizabeth alone. At this meeting, Elizabeth told the Lawyer that she wanted "all to go to Gloria to do with as she feels proper". However, when the Lawyer asked her how she would feel if Gloria kept everything, Elizabeth responded that she was "confident Gloria is kind enough that she would do the right thing".
- The Lawyer prepared a declaration of trust and a property transfer form for Elizabeth. The declaration of trust would transfer all of Elizabeth's assets into joint tenancy with Gloria. The declaration stated that this was done as part of estate planning, and that the right of survivorship would apply. However, Gloria would hold her share of the joint tenancy in trust for Elizabeth during Elizabeth's life.
- The Lawyer then made arrangements for Elizabeth to receive independent legal advice from another lawyer. In her cover letter the Lawyer advised that she understood it was Elizabeth's intention that her assets would become Gloria's on her death.
- The lawyer for Elizabeth did not remember meeting with Elizabeth, so he gave evidence as to his usual practice. He stated that he would have explained the documents, including the concept of joint tenancy and the right of survivorship. He said he would have told Elizabeth that Gloria would inherit the assets on her death and that they would not have to go to probate. He also stated that he would have told her that if Gloria predeceased her, her state would not be affected. The lawyer testified that if he had been concerned that Elizabeth was being unduly influenced he would not have signed the document.
- Crucially, the lawyer said he probably did not ask Elizabeth why she wanted to transfer her assets solely to Gloria. It was not the lawyer's practice to ask the client her reasons for doing what she did or to discuss the merits of the transaction.
- Elizabeth executed the declaration of trust and the property transfer with the lawyer in his office.
- Elizabeth passed away on August 5, 2010. Gloria was her executrix. Initially, Gloria prepared to split all of Elizabeth's assets three ways with her brothers.
- However, in early 2011 Gloria's relationship with her brothers had soured. For the first time, Gloria attempted to assert ownership over all of Elizabeth's assets through her right of survivorship.
The Court found that the relationship between Gloria and Elizabeth was such that the potential for domination existed, and the transaction unduly disadvantaged Elizabeth. The presumption of undue influence was established.
Gloria argued that the lawyer's independent advice rebutted the presumption of undue influence. The Court disagreed:
- The lawyer was not aware of the extent of Elizabeth's assets and did not discuss the financial implications of placing all of her assets in trust with the right of survivorship to Gloria;
- The lawyer did not ask Elizabeth about other family members who might have benefitted if the transaction did not take place;
- The lawyer did not discuss with Elizabeth the wisdom of the proposed transaction or other options whereby she could achieve her objective with less risk; and
- The lawyer did not discuss matters fully with Elizabeth with a view to eliciting her own views and obtaining her own instructions.
Importantly, the Court found Gloria "to be an unreliable and unbelievable witness... hostile, argumentative, and evasive". Additionally, the Court found that significant portions of her testimony were "patently untrue". There were objective witnesses who testified as to Gloria's influence over her mother, Elizabeth's love for all her children and the negative relationship between Gloria and her brothers.
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.