Joint Tenancy Severed By Conduct

Joint Tenancy Severed By Conduct

Lescano v Unlu 2016 BCSC 1535 is a case exemplifying how conduct of joint tenants that is inconsistent with joint tenancy can have the legal effect of severing the joint tenancy into a tenancy in common.

The court found that if the joint tenants ever were a couple that it long ago ended and that at least one of the parties, if not both, did not understand the legal effect of a joint tenancy and did not want it from the outset. A hand written will prepared by one of the joint owners indicated that she wished her share of the property to go to her three children equally in the event of her death.

Was the joint tenancy severed?

[6]             There is no dispute that any discussion of severance of a joint tenancy must begin with the decision of Vice-Chancellor Wood in Williams v. Hensman (1861), 70 E.R. 862, at p. 867.  Vice-Chancellor Wood set out the three ways in which a joint tenancy may be severed.

These ways − often referred to subsequently as “Rules” − were summarized by Chief Justice Winkler, for the Ontario Court of Appeal, in the last sentence of para. 34 of Hansen Estate v. Hansen, 2012 ONCA 112, as follows:

Rule 1:  unilaterally acting on one’s own share, such as selling or encumbering it.

Rule 2:  a mutual agreement between the co-owners to sever the joint tenancy, and,

Rule 3:  any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common.

[7]             In Hansen Estate, the Ontario Court of Appeal expressly declined to follow or adopt what may be described as an added pre-requisite enunciated by Justice Southin, writing on behalf of the British Columbia Court of Appeal in Tompkins Estate v. Tompkins, [1993] B.C.J. No. 445 (C.A.).  In Tompkins Estate, Justice Southin stated that Vice-Chancellor Wood’s “Rules” were a species of estoppel.  At para. 17 of her Reasons she wrote:

In my opinion, the Vice-Chancellor was postulating a species of estoppel which might be put thus:  if joint tenants conduct themselves in their legal dealings with one another on a footing consonant only with their interests being several and not joint, one of them may not later resile and assert the interest was joint if a right of survivorship in him would be unjust to his fellow co-tenants who have themselves proceeded on the footing the interests were several.

[8]             Based on this conclusion, Justice Southin stated that the party seeking to assert severance must show that it relied on the acts of a co-tenant, to its detriment.

[9]             In Hansen Estate, Chief Justice Winkler provided cogent and compelling reasons for rejection of these added elements.  In paras. 47 and 49 through 51, Chief Justice Winkler explained the basis of his rejection of Justice Southin’s requirements for proof of reliance and detriment.

[10]         Having carefully considered both the decision in Hansen Estate and the cases cited to me that have applied it; and the decision in Tompkins Estate and the cases cited to me that have applied it: I prefer the reasoning in Hansen Estate.  I am satisfied, however, that even if I am bound to follow Tompkins Estate, the plaintiffs in the case at bar have established that a severance of the joint tenancy between Delma B and Mr. Unlu occurred before Delma B’s death in 2015.

[11]         As discussed in Hansen Estate, and in Tompkins Estate, the primary characteristic distinguishing joint tenancy from tenancy in common is the right of survivorship − that is, that upon the death of one joint tenant, his or her interest passes by operation of law to the other joint tenant or tenants.

 I am satisfied that the facts referred to in the Statement of Agreed Facts, supplemented by the facts set out in these Reasons, establish a course of dealing indicating that Mr. Unlu and Delma B considered themselves to have become tenants in common.

[52]         I have already referred to Mr. Unlu’s testimony indicating that he never wanted joint tenancy and from the outset did not understand or agree that on his death the entire property (the 99% interest he and Delma B held) would become the property of Delma B.  The handwritten “will” prepared by Delma B in December 2000 indicates that she also did not intend that her interest in the property pass to Mr. Unlu by right of survivorship.  She intended her “share” of the property to go to her three children in the event of her death.

[53]         If there was a spousal relationship between Mr. Unlu and Delma B, it ended soon after the purchase of the Richmond home.  Thereafter, the two lived separate and apart in the same home and conducted separate lives.  They did not maintain joint bank accounts or intermingle their finances in any way.  The parties did not maintain any other joint assets.  Delma B moved out of the home temporarily in 2004 and later Mr. Unlu permanently vacated the premises, leaving Delma B in sole possession.

[54]         In 2004, Mr. Unlu attempted to make a will leaving his share of the property to his daughter.  Mr. Unlu’s lawyer, Mr. Ash, wrote to Delma B and asserted on behalf of Mr. Ash that the joint tenancy had been severed at the time the parties separated.  Delma B did not, so far as the evidence indicates, dispute that assertion.  I am of the view that Delma B, who apparently had no legal representation at that time, relied on the representation made by Mr. Ash on behalf of Mr. Unlu, to her detriment.  After December 2005, she paid all of the expenses associated with the home, including the entirety of the mortgage and taxes, without demanding a contribution from Mr. Unlu.  Even after the fire occurred and she could no longer reside in the property, Delma B continued to bear all of the costs of preserving the property.  I conclude she would not have done so had she believed that in the event of her death, the entire benefit of payments made solely by her would go to Mr. Unlu.

[55]         I conclude that the joint tenancy between Mr. Unlu and Delma B was severed prior to the death of Delma B and that at the time of her death, the parties were tenants in common.

Tenancy in Common – 3 Ways to Sever Joint Tenancy

ConvertingJoint Tenancy into Tenancy in Common

Zeligs Estate v Janes 2016 BCCA 280 contains an excellent review of the law relating to severance of a joint tenancy, thus converting it into a tenancy in common:

[45]        Like any owner, a joint tenant is entitled to deal freely with his or her interest in property.  Accordingly, a joint tenant may sever a joint tenancy, with or without the consent or knowledge of the other joint tenant(s) and subject to contrary statutory provision.  After a joint tenant dies, however, severance is no longer possible because death extinguishes the joint interest.  For this reason, a testamentary disposition cannot sever a joint tenancy:  Bergen v. Bergen, 2013 BCCA 492 (CanLII) at para. 40; Hansen Estate at para. 63; A.J. McClean, “Severance of Joint Tenancies” (1979) 57 Can. Bar Rev 1 at 2, 38-41.

[46]        When a joint tenancy is severed, the joint tenancy is converted into a tenancy in common and the right of survivorship is extinguished.  In consequence, each affected co-owner becomes entitled to a distinct share rather than an undivided interest in the whole: Bergen at para. 40; Flannigan v. Wotherspoon (1952), 7 W.W.R. (N.S.) 660 at 665 (B.C.S.C.).  In joint tenancies composed of more than two persons, a blend of interests may be present.  For example, if A, B and C are joint tenants a severance of A’s interest will convert it into a tenancy in common, however, B and C will continue to be joint tenants with rights of survivorship between themselves: McClean at 6; Law Reform Commission of British Columbia at 5.

[47]        Severance is typically effected in one of three ways: by one person’s acting unilaterally upon his or her own share so as to destroy the four unities (for example, by selling it); by mutual agreement (for example, by written contract); or by “any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common” (for example, by conduct which demonstrates all tenants mutually dealt with their interests as several).  Other possible modes of severance include bankruptcy, partition or an order made under matrimonial property legislation: Williams v. Hensman (1861), 70 E.R. 862 (Eng. Ch.); Tessier Estate v. Tessier, 2001 SKQB 399 (CanLII) at para. 8.

[48]        Vice-Chancellor Wood described the three primary modes of severance, now known as the “three rules”, in Williams at 867:

3 Ways to Sever Joint Tenancy:

  1. In the first place, an act of any one of the persons interested operating upon his own share may create a severance as to that share.  The right of each joint-tenant is a right by survivorship only in the event of no severance having taken place of the share which is claimed under the jus accrescendi.  Each one is at liberty to dispose of his own interest in such a manner as to sever it from the joint fund – losing, of course, at the same time, his own right to survivorship. 
  2. Secondly, a joint-tenancy may be severed by mutual agreement. 
  3. And, in the third place, there may be a severance by any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common.  When the severance depends on an inference of this kind without any express act of severance, it will not suffice to rely on an intention, with respect to the particular share, declared only behind the backs of the persons interested. You must find in this class of cases a course of dealing by which the shares of all the parties to the contest have been effected, as happened in the cases of Wilson v. Bell [(1843), 5 IR. Eq. 501 (Eng. Eq. Exch.)] and Jackson v. Jackson [(1804), 9 Ves. 591 (Eng. Ch.)]   

[49]        Rule 1 concerns the destruction of an essential unity by a joint tenant’s unilateral action.  As a matter of law, any such act automatically severs a joint tenancy: Bergen at para. 40.  Rules 2 and 3 concern the joint tenants’ common intention and operate in equity.  Where it would be unjust to permit parties to assert survivorship rights because of their conduct, equity intervenes to prevent them from doing so: Hansen Estate at para. 39; Ziff at 345.

[50]        Vice-Chancellor Wood’s judgment in Williams is the usual starting point in a severance analysis, although some jurists and commentators disagree on its meaning.  In particular, the extent to which rule 2 and rule 3 differ is controversial, as is the role, if any, that estoppel doctrine plays.  For example, in Tompkins Estate v. Tompkins (1993), 1993 CanLII 1119 (BC CA), 99 D.L.R. (4th) 193 (B.C.C.A.) Southin J.A. opined that Vice-Chancellor Wood was postulating a species of estoppel in rule 3 and disagreed with the trial judge’s view that severance requires either alienation or agreement, preferring to say it requires “… either alienation or agreement or facts which preclude one of the parties from asserting that there was no agreement” (199).  However, to the extent she interpreted rule 3 as a species of estoppel requiring proof of detrimental reliance, Winkler C.J.O disagreed in Hansen Estate, observing that a course of dealing sufficient to sever requires only that the co-owners knew of the other’s position and mutually treated their interests as several (at paras. 46-51).  In addition, some commentators question whether rules 2 and 3 are truly distinguishable: McClean at 16; Ziff at 345-347.

[51]        This case is primarily concerned with rule 1, the unilateral destruction of an essential unity.  As in Farley v. Pearlson, 2003 BCCA 37 (CanLII), it is thus unnecessary to analyse the full reach and meaning of Williams with respect to rules 2 and 3.  Nevertheless, at trial Mr. Zeligs argued that there was a rule 3 severance based on the parties’ course of conduct and the judge considered both rules 1 and 3, noting the diverging authorities.  In these circumstances, I think it prudent to comment on certain factors that may contribute to the controversy and suggest a possible route to its resolution.

[52]        The leading English authorities on severance are Williams and Burgess v. Rawnsley [1975] Ch. 429 (Eng. C.A.).  The reasons for judgment in both state that rules 2 and 3 cover separate methods of severing a joint tenancy, with severance by mutual agreement covered by rule 2.  However, in undertaking a rule 3 analysis courts sometimes focus on whether there was an implied agreement between the parties.  In other words, the parties’ course of dealings is sometimes analysed under rule 3 as evidence of facts from which an agreement to sever is inferred rather than as a separate method of severance: see, for example, Flannigan.  In my view, this approach blurs the line between rules 2 and 3.

[53]        I agree with Winkler C.J.O. in Hansen Estate that rule 3 is a conceptually distinct method of severance which does not encompass implied agreement.  I also agree with Wright J. in Tessier that the parties’ conduct may provide an evidentiary basis from which agreement can be inferred (at para. 12).  Nevertheless, mutual agreement, express or implied, is captured by rule 2 and should be analysed accordingly. The question under rule 3 is whether, in the absence of agreement, it would be unjust to permit a party to assert survivorship rights because of the parties’ mutual treatment of their interests.

[54]        Further, I see no reason to limit Southin J.A.’s rule 3 requirement of “facts which preclude one of the parties from asserting that there was no agreement” to cases involving detrimental reliance, nor do I think she necessarily did so.  Rather, in my view, on the facts of Tompkins Estate Southin J.A. considered it just to permit the respondent to assert survivorship rights, given the matrimonial context and the parties’ conduct, which, unlike the conduct at issue in Williams, included no element of reliance.  However, on different facts it might well be unjust to do so where co-owners have mutually demonstrated a common intention to treat their interests as several.  Depending on the circumstances, this may be true regardless of whether detrimental reliance can be shown: Hansen Estate at paras. 35-51.

[55]        Ascertaining whether a joint tenancy has been severed is a factual question, often determined on the basis of reasonable inference(s).  It requires the application of a legal standard to the facts as found by the trial judge.  Accordingly, on appeal the standard of palpable and overriding error applies to the judge’s finding that a severance has been effected:  Fuller at paras. 36-38; Flannigan at 666; Tessier at para. 12.

Rule 1 – Severance by Unilateral Action

[56]        When a joint tenant transfers his or her property interest the unity of title is broken and severance follows, subject to contrary statutory provision. For example, in some systems of title registration a transfer must be registered or the co-owner’s consent obtained before a severance takes effect: see, Land Titles Act, 2000, S.S. 2000, c. L-5.1, s. 156.  In British Columbia, however, s. 18(3) of the Property Law Act, R.S.B.C. 1996, c. 377 provides that a joint tenant may sever a joint tenancy by transferring property to himself or herself without requiring that the co-owner(s) be notified and s. 30 of the Law and Equity Act, R.S.B.C. 1996, c. 253 allows for severance by transfer of personal property to oneself and another.  In addition, s. 20 of the LTA provides that an instrument purporting to transfer an interest in land does not pass a legal or equitable interest unless the instrument is registered, except as against the person making the instrument.

[57]        In Stonehouse v. British Columbia (Attorney General), 1961 CanLII 48 (SCC), [1962] S.C.R. 103 the Supreme Court of Canada considered a predecessor provision similar to s. 20 of the LTA.  Based on the exception for the maker of the instrument, the court held an unregistered transfer deed executed by a joint tenant severed the joint tenancy.  This result followed because, without purporting to pass the other tenant’s interest, by dealing with her own, the transferring joint tenant changed the character of the other into a tenancy in common by operation of law.  In effect, the exception embedded within the statutory provision preserved the common law rule. 

[58]        Unlike transfers, mortgages do not usually take effect by way of conveyance; they operate by way of security as a charge against title.  In British Columbia, s. 231 of the LTA provides that a mortgage operates to charge the mortgagor’s estate or interest in land.  In consequence, the four unities are not broken when a mortgage is granted and a joint tenancy is not severed: Ziff at 344.  Nor does a unilateral statement of intention to sever effect a severance.  Some form of action or mutual agreement is required to sever a joint tenancy: Walker v. Dubord (1992), 1992 CanLII 2095 (BC CA), 67 B.C.L.R. (2d) 302 (C.A.) at para. 23.

[59]        Property can be converted from one form to another without effecting a severance, but not by unilateral action.  For example, it is possible to convert land into money or vice versa without necessarily severing the joint tenancy.  The law permits joint tenancy in personal property no less than in realty, thus a joint tenancy may carry on following a land sale by all joint owners because joint ownership may continue in relation to the sale proceeds: Allingham v. Allingham, [1932] VLR 469; Walker at para. 41.  However, if the sale proceeds are divided the four unities are destroyed and, in consequence, the joint tenancy is severed: Flannigan at 665-666; Tessier at paras. 11-12; Ziff at 345.

Further reading on tenancy in common

Joint Tenancy vs. Tenancy in Common

Joint Tenancy, Tenancy in Common and the Right of Survivorship

The Nature of a Joint Tenancy

Abuse of Process in BC Estate Litigation

Special Costs Not to Include Pre Litigation Conduct

Many estate litigation claims and counterclaims contain far too much emotional distortion so as to become frivolous, vexatious, unnecessary and otherwise an abuse of process that upon application, may lead to those portions of the claim found to be such to be stricken or dismissed entirely.

In Wotherspoon v Steele 2016 BCSC 818, the plaintiffs believed that all matters between themselves and their defendant brother had been resolved at mediation.

The defendant subsequently  balked on carrying through with the settlement and filed a specious counterclaim that the court struck completely on the basis that it was without legal foundation and an abuse of process.

28      The test for striking a pleading under R. 9-5(1)(b), on the basis that it is unnecessary, scandalous, frivolous or vexatious, was recently summarized in Willow v. Chong, 2013 BCSC 1083 (B.C. S.C.), where Madam Justice Fisher said:

[20] Under Rule 9-5(1)(b), a pleading is unnecessary or vexatious if it does not go to establishing the plaintiff’s cause of action, if it does not advance any claim known in law, where it is obvious that an action cannot succeed, or where it would serve no useful purpose and would be a waste of the court’s time and public resources: Citizens for Foreign Aid Reform Inc. v Canadian Jewish Congress, [1999] BCJ No. 2160 (SC); Skender v Farley, 2007 BCCA 629 …

29      The abuse of process standard under R. 9-5(1)(d) allows the court to prevent a claim from proceeding where to do so would violate principles of judicial economy, consistency, finality and the integrity of the administration of justice: Toronto (City) v. C.U.P.E., Local 79, 2003 SCC 63 (S.C.C.) at paras. 35-37.

Gratuitous Land Transfer is a Trust

Gratuitous Land Transfer Is a Trust

McKendry v McKendry 2015 BCSC 2433 dealt with a very common fact pattern in estate disputes- where a parent puts the property in joint names with one child and excludes the other children, thus disinheriting them.

In McKendy the transfer was held to be a trust and the property thus was an estate asset that was subsequently varied in a wills variation action at the same time and each child received an equal share.

It is significant that both the resulting trust claim and the wills variation claims were heard at the same time by the court. Many defence counsel have long argued that this should not occur, but it frequently does and I submit it is entirely appropriate.

The Law of Resulting Trusts

The legal principles applicable when considering a gratuitous transfer into joint tenancy are not in dispute.  The basic question is whether the transferor intended to make a gift, or whether the transferee holds the property transferred on a resulting trust.

[110]     Pecore v. Pecore, 2007 SCC 17, is the leading case.

[111]     It is the actual intention of the transferor at the time of the transfer that is relevant:  Pecore, at paras. 5, 44 and 59.  The presumption of resulting trust is a rebuttable presumption of law and general rule that applies to gratuitous transfers.  When a transfer is challenged, the presumption allocates the legal burden of proof.  Thus, where a transfer is made for no consideration, the onus is placed on the transferee to demonstrate that a gift was intended.  See Pecore, at paras. 24 and 43.  Rothstein J. also noted (Pecore, at para. 44):

[44]      As in other civil cases, regardless of the legal burden, both sides to the dispute will normally bring evidence to support their position.  The trial judge will commence his or her inquiry with the applicable presumption and will weigh all of the evidence in an attempt to ascertain, on a balance of probabilities, the transferor’s actual intention.  Thus, as discussed by Sopinka et al. in The Law of Evidence in Canada, at p. 116, the presumption will only determine the result where there is insufficient evidence to rebut it on a balance of probabilities.

[112]     Accordingly, where a gratuitous transfer is being challenged, the trial judge must begin the inquiry by determining the proper presumption to apply and then weigh all the evidence relating to the actual intention of the transferor to determine whether the presumption has been rebutted:  Pecore, at para. 55.  In general, evidence of the transferor’s intention at the time of the transfer ought to be contemporaneous, or nearly so to the transaction:  Pecore, at para. 56.  Nevertheless, evidence of intention that arises subsequent to a transfer should not automatically be excluded.  However, such evidence “must be relevant to the intention of the transferor at the time of the transfer:  . . . The trial judge must assess the reliability of this evidence and determine what weight it should be given, guarding against evidence that is self-serving or that tends to reflect a change in intention.”  See Pecore, at para. 59.

[113]     In Fuller v. Harper, 2010 BCCA 421, D. Smith J.A. elaborated on how the presumption of resulting trust should be applied to a gratuitous transfer of real property.  After reviewing Pecore, she wrote (at para. 47):

[47]      The effect of the presumption only becomes evident after all the evidence, both direct and circumstantial, on the surrounding circumstances in which the transfer was made, has been weighed. Only if the trial judge is unable to reach a conclusion about the transferor’s actual intention at the time of the transfer, will the presumption be applied to tip the scales in favour of the transferor or his estate: Sopinka, Lederman & Bryant, The Law of Evidence in Canada, 3d ed. (Markham, ON: LexisNexis Canada, 2009) at page 159, § 4.60.

[114]     D. Smith J.A. also discussed the concept of the right of survivorship that is inherent in the creation of a joint tenancy, and wrote (at para. 53):

[53]      . . . [T]he legal and equitable title (the right of survivorship) of a joint tenancy vests at the time the joint tenancy is created.  Therefore, the gift of a joint interest in real property is an inter vivos rather than a testamentary gift and cannot be retracted by the donor.  It is a “complete and perfect inter vivos gift” (Pecore at para. 49 referring to Ferguson J.A.’s comments in Reid, Re (1921), 64 D.L.R. 598, 50 O.L.R. 595 (Ont. C.A.) at 608).

[115]     I note that Madam Justice Smith’s comments in this paragraph assume sufficient proof that a gift has been made.

[116]     The Court of Appeal again discussed these matters, also in the context of a joint tenancy in land, in Bergen v. Bergen, 2013 BCCA 492.

[117]     Newbury J.A. rejected the proposition advanced by counsel for the appellant (the defendant Robert Bergen) that, once a right of survivorship is conferred, a “complete and perfect” inter vivos gift of the transferred property itself, including the beneficial interest therein, vests immediately in the transferee:  Bergen, at para. 36.  She confirmed (citing Pecore and Kerr v. Baranow, 2011 SCC 10) that the actual intention of the transferor is the key factor:  Bergen, at para. 38.  Newbury J.A. contrasted a joint bank account with a joint tenancy in land, and wrote (at paras. 40-42):

[40]      Where a joint tenancy in land is concerned, on the other hand, either of the joint tenants is at liberty to sever the joint tenancy at any time − a fact that clearly undermines the notion that as a matter of law, a joint tenant receives a “full and perfect” inter vivos gift of the “survivorship” (and counsel for Robert contends, of the property itself).  Severance, which occurs automatically upon the destruction of the four unities, ends the jus accrescendi, with the result that each co-owner becomes entitled to a distinct share in the land rather than an undivided interest in the whole.  (Under s. 18(3) of the Property Law Act, R.S.B.C. 1996, c. 377, a joint tenant may sever the joint tenancy—and thus the “survivorship” – by transferring the property to himself and need not even notify the co-owner.  See generally Law Reform Cm’n., supra, at 5-9 and 33-44; and A.J. McClean, “Severance of Joint Tenancies” (1979) 57 Can. B. Rev. 1.)  As observed by Steel J.A. in Simcoff v. Simcoff 2009 MBCA 80, a case involving land, “the fact that a ‘complete gift’ … included a right of survivorship does not, prima facie, prevent a donor from dealing with the retained interest while alive.  The right of survivorship is only to what is left.”  In the case of real property (and personalty, for that matter) nothing remains of the right of survivorship.

[41]      Of course it remains true that once a gift has been made of an interest in real property or any other type of property, the gift cannot be revoked − whether the transferee takes as a joint tenant or tenant in common.  As stated by D. Smith J.A. in Fuller v. Harper, “The gift of a joint interest in real property is an inter vivos rather than a testamentary gift and cannot be retracted by the donor.  It is a ‘complete and perfect inter vivos gift’ …”.  (At para. 53.)  At the same time, in cases where the property was provided by the transferor, the transferee must still prove that a gift was intended − i.e., he or she must rebut the presumption of resulting trust.  Pecore cannot be read as suggesting that the Court intended to do away with the presumption or the necessity of rebutting it with reference to the transferor’s intention:  that was the crux of the majority’s reasons. . . .

[42]      In the result, I do not accede to the submission of counsel for Robert that once an interest in land (which A acquired with his own funds) has been transferred by A to A and B as joint tenants, it follows as a matter of law and regardless of A’s intention, that B has received an immediate gift of that interest, including the beneficial ownership thereof in the property.  If B wishes to assert such an interest, whether during A’s lifetime or upon A’s death, he or she must, in Rothstein J.’s words, “rebut the presumption of resulting trust by bringing evidence to support his or her claim.”  (Para. 41.)  Consistent with this, the authors of Waters in the most recent edition (post-Pecore) state:

If A supplies the purchase money and conveyance is taken in the joint names of A and B, B during the joint lives will hold his interest for A, B will also hold his right of survivorship − again by way of resulting trust for A’s estate, because that right is merely one aspect of B’s interest.  In other words, the starting point is that B holds all of his interest on resulting trust for A, or A’s estate.  However, evidence may show that, while A intended B to hold his interest for A during the joint lives, it was also A’s intention that, should he (A) predecease, B should take the benefit of the property.  The presumption of resulting trust would then be partially rebutted, in relation to the situation that has arisen, so that B would not hold his interest (now a sole interest and not a joint tenancy) on resulting trust.  He would hold it for his own benefit.  [At 405; emphasis added.]

See also Waters (4th ed.) at 440.

[118]     These paragraphs from Bergen confirm that the mere fact that the transferor has transferred title to real property into the names of the transferor and transferee as joint tenants tells us nothing about the transferor’s actual intention.  The transferee must still prove that, at the time of the transfer, the transferor intended to make a gift.  Otherwise, there is a resulting trust.

Will Drafters File Privileged In Wills Variation Claims

Judgement Does Not Sever Joint Tenancy

In an unreported decision, Brown v Terins et al, 20150505, Madam Justice Fisher refused an application brought by the plaintiffs in a wills variation action for access to the will drafters file so as to determine inter alia, the reasons for the disinheritance, so as to be able to determine if the reasons were rational and valid as they must be when reasons are stated.

No reasons were stated in the will for the disinheritance, and the plaintiff argued that under the exceptions to lawyer privilege is !) The exception to the general rule and wills cases and 20 waiver and fairness.

The judge followed precedent law stating that access to the will drafters file in a wills variation action is privileged and should not be made available to the plaintiff unless the executor waives the privilege.

disinherited.com personally agrees with the plaintiff in this application and feels that the will maker’s file should be disclosed in its entirety to all parties. That however is not the law.

The following quotes of law supporting the contention that the lawyer’s file is privileged as to the communications between the lawyer and the client as to any reasoning that might have been given with respect to a disinheritance under a wills variation claim.

It should be noted that should the validity of the will itself be in contention, such as for lack of capacity or claims of undue influence, then the lawyers will file is compellable to the plaintiff.

The Wills Exception

[8] The wills exception stems from the1851 decision in Russell v. Jackson, (1851), 9 Ha. 387, which reasoned that disclosure should be made in cases where the validity of a will is challenged in order to ascertain “the views and intentions of the parties, or the objects and purposes for which dispositions have been made”. The principle was extended to some extent in Geffen v. Goodman Estate, [1991] 2 SCR 353, to cases involving inter vivos trusts. It has also been extended in a case involving a committeeship under the Patients Property Act, RSBC 1996 c 349 in Re Palamarek, 2010 BCSC 1894.

[9] The rationale for this exception was discussed extensively in Geffen, and Madam Justice Wilson’s reasons for extending it there were stated at para. 65:  

In my view, the considerations which support the admissibility of communications between solicitor and client in the wills context apply with equal force to the present case. The general policy which supports privileging such communications is not violated. The interests of the now deceased client are furthered in the sense that the purpose of allowing the evidence to be admitted is precisely to ascertain what her true intentions were. And the principle of extending the privilege to the heirs or successors in title of the deceased is promoted by focusing the inquiry on who those heirs or successors properly are. In summary, it is, in the words of Anderson Surr. Ct. J. In Re Ott, supra, “[i]n the interests of justice” to admit such evidence.

[10] This case was referred to at length by Master Joyce (as he then was) in Gordon v. Gilroy, [1994] BCJ No. 1927 (SC). In Gordon, the question was whether that rationale supported disclosure in a Wills Variation Act action. Master Joyce decided that it was not, for these reasons:

In this case the issue is not “what were the true intentions of the testator”. There is no issue that he intended to leave his entire estate to Ms. Gilroy and thereby to disinherit his children. The purpose for seeking disclosure of the confidential communications in this case is not for the purpose of determining the testator’s true intentions or even the reasons for them, which are fully stated in the will itself, but rather for the purpose of attempting to defeat those intentions. The plaintiffs seek disclosure of the confidential communications in an attempt to overturn the will and defeat Mr. McKay’s testamentary wishes.

I suspect that it would surprise and distress a client if told by the solicitor whom that person retained to give advice and to prepare a will concerning the disposition or lack of disposition to the client’s children that after his or her death the solicitor would be obliged to disclose the discussions which the Brown v. Terins Page 4

The Factors To Determine an Executor’s Compensation

In the well-known case of Re Toronto General Trusts and Central Ontario Railway (1905), 6 O.W.R. 350 (H.C.), five central factors should be considered by the audit judge in arriving at the amount of an executor’s compensation. The maximum fee for obtaining probate and distributing the assets is %5 with management of capital charges available over and above that where appropriate.
Those factors are:
(1) the size of the trust;
(2) the care and responsibility involved;
(3) the time occupied in performing the duties;
(4) the skill and ability shown; and
(5) the success resulting from the administration.
The later case of Re Atkinson, [1952] O.R. 685, [1952] 3 D.L.R. 609 (C.A.) added some helpful clarifying comments on the s. 61(1) discretionary power, especially on the use of “percentages” to establish the level of compensation.
The Court said at p. 698 [O.R.]:
If these statutory provisions are properly borne in mind, then in many instances the proper compensation may well be reflected by the allowance of percentages, but the particular percentages applied, or any percentages, are not to be regarded as of paramount importance; they should be employed only as a rough guide to assist in the computation of what may be considered a fair and reasonable allowance; the words of the statute override everything else and that fair and reasonable allowance is for the actual ‘care, pains and trouble, and time expended’. In some estates, indeed perhaps in many, no fairer method can be employed in estimating compensation than by the application of percentages. In others, while percentages may be of assistance, it would be manifestly unreasonable to apply them slavishly and to do so would violate the true principle upon which compensation is always to be estimated.
It can readily be recognized that, depending upon the idiosyncrasies of the particular estate, the care, pains and trouble and time expended may be disproportionate to the actual size of the estate. A small, complex estate may make more demands upon the trustee’s care and time and skill than a much larger estate of a simpler nature; conversely, even in a large estate with many complex problems, assessment of the compensation by the adoption of what might be said to be ‘the usual’ percentages would result in a grossly excessive allowance.

Party Cannot Take Tax Benefit For One Purpose and Deny It For Another

In Rosenthal v Rosenthal, 1986 CarswellOnt 288 (HCJ), it was held that an individual cannot take a position to obtain a tax benefit and then deny that position to obtain a different benefit.

At para 51 of Rosenthal, the court noted that “it is being argued that for the purpose of the Income Tax Act in 1969, the transfer of shares was not a gift, but for the purpose of the Family Law Act in 1986, the transfer of shares was a gift. Such a result should not be condoned by the court on the grounds of public policy alone.”

Further, the husband could not assert for tax purposes that the transfers were not a gift but for division of family property purposes that they were. Thus, the value of these shares form part of the net family property.

The Prudent Investment Standard For Trustees

The Prudent Investment Standard For Trustees

Miles v Vince 2014 BCCA 290 allowed an appeal and removed a  trustee for failure to abide by the Prudent Investor Standard expected of a trustee.

The Trustee had used the funds from an insurance trust for a speculative real estate investment

The Prudent Investor Standard

[52]         The respondent’s legal obligation with respect to the investment of the property of the Insurance Trust is to act as a prudent investor. Section 15.2 of the Trustee Act, R.S.B.C. 1996, c. 464, provides:

In investing trust property, a trustee must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making investments.

[53]         The appellant argues that a prudent investor would not place all of the Insurance Trust’s assets into one investment, but instead, would have a diversified portfolio of investments. The respondent says that she was under no statutory obligation to diversify the investment portfolio or invest the trust funds in any particular manner.

[54]         In Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302, the Supreme Court of Canada held that the primary duty of a trustee is to preserve trust assets. This principle applies despite broad discretionary powers given to the trustee in the trust document. Justice Dickson (as he then was) articulated this standard (at 316):

This standard, of course, may be relaxed or modified up to a point by the terms of a will and, in the present case, there can be no doubt that the co-trustees were given wide latitude. But, however wide the discretionary powers contained in the will, a trustee’s primary duty is preservation of the trust assets, and the enlargement of recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application of common sense. [Emphasis added.]

[55]         This Court applied Fales to underscore the duty of a trustee to preserve trust assets in Froese v. Montreal Trust Co. of Canada (1996), 20 B.C.L.R. (3d) 193, leave to appeal ref’d [1996] S.C.C.A. No. 399.

[56]         In Froese, an employee was a beneficiary of a pension plan for which he was to receive regular benefits. His employer began to make irregular contributions to the plan, and soon ceased to contribute. As a result, the beneficiary’s pension was reduced significantly.

[57]         This Court held that Montreal Trust, as trustee of the plan, had a duty to inform the beneficiary when it became aware regular contributions were not being made. Chief Justice McEachern, for the majority, held (at paras. 57-58):

The trial judge framed the question as whether there was any obligation to volunteer information to the beneficiary. With respect, I think that is far too narrow. In my view, “true” trustees have obligations of prudence to protect not just the corpus of the trust, but also the interest of the beneficiaries from the ongoing operation of the plan.

I postulate a simple example. Assume that the Company appoints an investment manager, and that that manager instructs the trustee to invest the corpus, or so much thereof as the plan permits, in the subordinated securities of the company. (This is an extreme example because most plans provide investment rules that must be followed.) Absent such rules, can it seriously be argued that a trustee owes no larger, general duty of prudence respecting the trust which transcends the four corners of the agreement? In this respect, I agree with the comments of Dickson J. (as he then was) in [Fales], although stated in a different context. He said, no matter how wide their discretionary powers:

… a trustee’s primary duty is preservation of the trust assets, and the enlargement of recognized powers does not relieve him of the duty of using ordinary skill and prudence, nor from the application of common sense.

[58]         Section 15.2 of the Trustee Act enacted in statutory form the standard of care for trustees investing trust property. As noted above, it requires an investor to exercise the care, skill, diligence and judgment of a prudent investor.

[59]         The “prudent investor” is also referred to in s. 15.3 of the Trustee Act:

A trustee is not liable for a loss to the trust arising from the investment of trust property if the conduct of the trustee that led to the loss conformed to a plan or strategy for the investment of the trust property, comprising reasonable assessments of risk and return, that a prudent investor would adopt under comparable circumstances.

[60]         Professor Donovan Waters discusses the development of the “prudent investor” standard in Canada in Donovan W.M. Waters et al., Waters’ Law of Trusts in Canada, 4th ed. (Toronto: Thomson Reuters Canada Limited, 2012) at 1006-1009.

[61]         Professor Waters notes (at 1008) that in 1997 the Uniform Law Conference of Canada promulgated the Uniform Trustee Investment Act, 1997, which imposed an obligation for trustees to diversify investments and provided a list of factors which a trustee may consider in making investment decisions.

[62]         He describes the “prudent investor” standard as used in the B.C. Trustee Act, (at 1018):

The reference to the “prudent investor” is intended to bring into the picture the requirements of modern portfolio theory, which teaches that one must first decide what is the level of appropriate level of risk, and then seek to maximize the return within that constraint.

[63]         He points out that diversification is implicit in the prudent investor standard, based on modern portfolio theory (at 1019-1020):

It is true that in some jurisdictions, particularly those retaining the prudent man standard, there is room for argument as to whether the trustee has the duty to diversify. The new prudent investor standard, based on modern portfolio theory, leaves less room for argument; diversity is inherent in modern portfolio theory. Even so, the circumstances of a trust might be inconsistent with diversification. For example, if a trustee expected to hold property only for a few weeks, it might not be prudent to expose the assets to the volatility which inheres in equity investments.

[64]         Unlike other jurisdictions in Canada, B.C.’s Trustee Act does not expressly impose a duty on trustees to diversify investments in accordance with modern portfolio theory (see The Trustee Act, 2009. S.S. 2009, c. T-23.01 s. 26; Trustee Act, R.S.O. 1990, c. T. 23 s. 27(6); Trustee Act, R.S.N.S. 1989, c. 479 s. 3B; Trustee Act, R.S.P.E.I. 1988, c. T-8 s. 3.1).

[65]         As Professor Waters suggests, however, the “prudent investor” standard implicitly brings modern portfolio theory into play, and thus requires the trustee to assess the level of appropriate risk and whether diversification is required.

Is the Loan a Prudent Investment?

[66]         In my opinion, the respondent trustee did not meet the prudent investor standard by investing all of the Insurance Trust’s assets, through the Loan, in the Main Street Properties.

[67]         The respondent says she consulted the Redden Report before embarking on the development of the Main Street Properties, and considered the information on the potential profitability of the development before making the Loan.

[68]         The respondent did not meet her statutory obligations to act as a prudent investor with respect to the assets of the Insurance Trust by relying on the Redden Report to assess the potential profitability of the development of the Main Street Properties. There is no evidence that she assessed the appropriate level of risk for the Insurance Trust, and then sought to maximize the return within that constraint. Rather, it appears she consulted the Redden Report to assess the development potential and required investment to develop the Main Street Properties, and used the funds from the Insurance Trust to meet those requirements.

[69]         The respondent maintains she was under no statutory obligation to diversify any investments made from the Insurance Trust. As Professor Waters points out, however, the link between the prudent investor standard and modern portfolio theory suggests that a trustee must assess whether diversification is required to preserve the trust assets.

[70]         In my view, prudent investment of the assets of the Insurance Trust required the trustee to consider the interests of all of the beneficiaries, including the appellant’s interest as an income beneficiary, in the context of the circumstances of the settlement of the Insurance Trust by Mr. Vince with proceeds of life insurance for the benefit of his wife and children after he knew he was ill. Mr. Vince’s interest in creating social housing, or his interest in the broader development of the Main Street Properties for market housing and commercial space with a component of social housing, which is what the respondent has embarked on, bears little relation to the creation of the Insurance Trust.

[71]         Had Mr. Vince intended that the proceeds of his life insurance be invested solely in the development of the Main Street Properties for the benefit of his children as the Division Date Beneficiaries, it is likely he would have provided for those proceeds to be settled on the Family Trust. I agree with the appellant that the existence of separate trusts indicates that Mr. Vince had separate intentions with respect to the use of the proceeds of the life insurance. It is a reasonable inference from the surrounding circumstances that Mr. Vince intended the life insurance proceeds to be used to support and maintain his widow and children after his death. It appears the chambers judge conflated Mr. Vince’s intention with respect to the Family Trust with that of the Insurance Trust.

[72]         Had the chambers judge correctly assessed Mr. Vince’s intention with respect to the Insurance Trust, he would not have concluded that investing all of its assets in the Loan was a prudent investment. The Loan is an illiquid asset invested in an illiquid real estate development project. It appears the Main Street Properties do not produce sufficient income to pay expenses including property taxes, as the proceeds of the B.C. Housing financing were used for that purpose. No interest or principal has been paid despite the Loan being due and payable, and there is no evidence of when the Loan will be repaid.

[73]         It is obvious that the Loan is in default. For the respondent to say that no demand has been made demonstrates “the difficult situation” for the respondent, recognized by the chambers judge, that arises if the Loan is in default. Only the respondent can make a demand for payment of the Loan, and as she argues, such a demand would put the development of the Main Street Properties at risk, contrary to her various interests as the primary promoter of that project.

[74]         Further, all of the security on the Loan was subject to the priority of the first mortgage and other security granted to B.C. Housing, including the priority agreement and option to purchase. If the option to purchase was exercised the Loan would have no value. To say that the priority agreement did not have that effect because the conditions under which it might be exercised had not occurred and were “highly speculative” simply ignores the terms of the Loan.

[75]         While the respondent in this case was under no express statutory duty to diversify the investment portfolio of the Insurance Trust, she nonetheless had a duty to act as a prudent investor. For the reasons above, I conclude her investment strategy in this particular case did not meet this standard.

[76]         The investment of the Insurance Trust’s assets into a single, illiquid set of properties has put the Insurance Trust’s assets at risk. The respondent has wide discretionary powers under the terms of the trust, but the respondent failed to undertake an appropriate risk assessment, in the context of the settlor’s intention with respect to the Insurance Trust, before investing all of the Insurance Trust’s assets in the Loan.

[77]         The respondent’s handling of the Insurance Trust assets also breached her duty of impartiality between the capital and income beneficiaries of that trust. The respondent justifies the investment of the assets of the Insurance Trust in the development of the Main Street Properties on the basis that her goal was to maximize the capital growth of the trust property for the benefit of the capital beneficiaries of both trusts. She dismisses her obligation to the income beneficiaries of the Insurance Trust, including the appellant, on the ground that the appellant did not provide financial information as to her needs as requested by the respondent, stating in her factum (R.F. at para. 84):

The extent of the respondent’s duty of even-handedness towards a beneficiary whose interest in the trust is merely discretionary cannot possibly be extended beyond a duty on the part of the trustee to make reasonable enquiries into the financial needs for the discretionary income beneficiaries. The respondent has done this.

[78]         The respondent has provided no authority for, in effect, ignoring the income beneficiaries in investing the trust property, and I find her argument unpersuasive. As noted by Professor Waters (at 1025):

With regard to the trust fund the income beneficiary is looking for the best yield obtainable, while traditionally the capital beneficiary is concerned with the safety of the fund. However, high yield usually means high risk, low yield low risk, and here is the inherent conflict between the interests of these two types of beneficiary. It is the duty of the trustees so to manage the fund that they do the best possible for both, and this means holding an even balance between yield and risk. Unless, and to the extent only that, the trust instrument requires or permits them to do otherwise, they must ensure that the assets originally received into the trust are put into a form which brings about this balance, and that the assets they subsequently acquire, again in the exercise of their power of investment, have the same result.

[79]         In this case, the respondent failed to undertake an investment strategy that balanced the interests of the capital and income beneficiaries of the Insurance Trust. As a result, I find she breached her duty to remain impartial between these beneficiaries.

Executor Ordered to Repay Monies

Executor Ordered to Repay Monies Back to Estate

Executor Ordered to Repay Monies Back to Estate Paid Out Before Expiration of 6 Month Limitation

Stevens v. Wood Estate (Re), 2013 BCSC 2380. Until six months have passed from the issuance of probate of a will, s. 12 of the Wills Variation Act, R.S.B.C. 1996, c. 490 (the “WVA”) prohibits, absent consent or court order, the distribution of any portion of an estate to its beneficiaries.

The question for determination on this application is the appropriate remedy when such a distribution has been made.

However, the case of Etches v. Stephens (1994), 99 B.C.L.R. (2d) 171 (S.C.) [Etches] assists with determining the purpose of s. 12(1) of the WVA.  Etches deals with the precursor to what is now s. 3(1) of the WVA which requires that an action under this Act must be brought within six months from the date of the issue or resealing of probate.  The court stated that this provision must be read alongside the precursor to what is now s. 12(1) which has the same time-limited language.  When the two sections are read together, the reason for the limits become clear (see paras. 9-12, and 15):

  1. The “main aim” of the WVA is “adequate, just and equitable provision for the spouses and children of testators” when a will does not provide for this: see Tataryn v. Tataryn Estate, [1994] 2 S.C.R. 807 at 815.  As such, it must allow those falling within these groups to apply to the court to have the will varied.
  2. If those affected were allowed to apply to court for a variation without any time limit on the action, then there would be the danger that the distribution of the assets would remain uncertain for a prolonged period of time.  Thus there is a limitation period of six months on the action.
  3. On the other hand, if there was not a rule against distributing the assets before the limitation period to challenge the will was expired, then there would be the danger that a legitimate action could be started but the assets would already have been distributed.  This would deprive those affected of an effective remedy and potentially result in an injustice.
  4. Furthermore, without the restriction placed on the administrator of the estate by s. 12(1), it would be possible for that administrator to attempt to thwart a legitimate claim by the dependents under s. 2 of the Act by distributing the assets before an action is brought.

[29]         The purpose of s. 12(1) is to keep the estate intact to ensure that a successful plaintiff is able to recover that to which they may become entitled. A breach of this statutory provision is a serious matter.  It goes to the heart of the legislative scheme.

[30]         Until the six-month limitation period has passed, a beneficiary’s entitlement to a share in the estate is not absolute. It is subject to variation if a successful action is brought under the WVA. Unless consents are obtained, the beneficiaries are not entitled to receive and benefit from their share of the estate until the WVA claims have been resolved or a court order has been obtained.

[31]         Similarly the plaintiff in a WVA action is entitled to have the assets in the estate preserved pending the outcome of their claim. They should not be put in the position of having to pursue after the executor or other beneficiaries to reap the benefits of a successful action.

[32]         Where there is a breach of the statutory provision and funds are distributed contrary to the legislation, the remedy of a claim against the executor or other beneficiaries, after the completion of the WVA action, does not sufficiently protect the successful WVA claimant. Those parties may, by then, be without assets or have taken steps that make it difficult to locate their assets.

[33]         It is the party who has breached the provisions of the statue who must make matters right. This application is not the forum to determine the strength or otherwise of a WVA claim. The WVA claimant is entitled to have the estate reconstituted to its state prior to the wrongful distribution.

[34]         I find that the appropriate remedy for a breach of s. 12 of the WVA is for the party who has breached the provisions to either repay the estate or to post security in the entire amount which has been wrongfully disbursed.

[35]         The Executrix in this matter must make matters right. She must, within 30 days of the date of these reasons, repay the estate or post security in the amount of $202,000, being the amount which she has improperly advanced to the beneficiaries. If the security is not posted within 30 days the plaintiff will be at liberty to seek further relief.

Trustee Removed For Selling Assets Below Market Value and Benefiting

Trustee Removed For Selling Assets Below Market Value and Benefiting

VanKoughnett & Others v. Austin, 2006 BCSC 1856 is authority for the proposition that a trustee removed under section 30 of the Trustee Act where there is potential conflict of interest between the personal interests of the trustee, and those of the beneficiaries, particularly in this situation where the trustee sold assets at far below market value, and the trustee had benefited from her administration of the estate

The Law

The present petition seeks to replace the designated executor and trustee with the alternate named in the will of the deceased.

[20]            The application is brought, in part, under s. 30 and 31 of the Trustee Act, R.S.B.C. 1996, c. 464, and amendments, which provide:

30         A trustee or receiver appointed by any court may be removed and a trustee, trustees or receiver substituted in place of him or her, at any time on application to the court by any trust beneficiary who is not under legal disability, with the consent and approval of a majority in interest and number of the trust beneficiaries who are also not under legal disability.

31         If it is expedient to appoint a new trustee and it is found inexpedient, difficult or impracticable to do so without the assistance of the court, it is lawful for the court to make an order appointing a new trustee or trustees, whether there is an existing trustee or not at the time of making the order, and either in substitution for or in addition to any existing trustees.

[21]            The test to be applied in an application to remove an executor on the basis of misconduct is that set out by our Court of Appeal in Conroy v. Stokes, [1952] 4 D.L.R. 124.  To succeed on this basis the evidence must show that the executor acted in a manner that endangered the estate, or that as executor he or she acted dishonestly, without proper care, or without reasonable fidelity.

[22]            Misconduct is, however, not a prerequisite to the court removing a trustee “when the continued administration of the trust with due regard for the interests of the cestui que trust has by virtue of the trustees become impossible or improbable”, Re Consielio Trusts (No. 1) (1973), 36 D.L.R. (3d) 658 at 660 (Ont. C.A.).

[23]            In Hall v. Hall (1983), 45 B.C.L.R. 154, the court granted an application for removal of an executor where the executor’s duties were in conflict with his or her personal interests, estate assets had been endangered by the executor’s conduct, and the executor had benefited at the expense of the estate.