In 2007, the Supreme Court of Canada changed the law relating to the treatment of assets advanced to children. The case (Pecore v. Pecore) pertains to bank accounts, but also applies to land and other assets.
For example, the old law generally was that if an adult added a child to a bank account and later died, the account belonged to the child on the basis of the legal presumption of advancement. That presumption no longer applies to adult children.
Today, if an adult adds a child to her/his bank account, whether the child keeps it on the death depends on the parent’s intention at the time they added their child to the account. If there is no evidence of what the parent intended, the law deems the child to be holding the account on a resulting trust for the deceased parent’s Estate.
This summer, the Ontario Court of Appeal released reasons for judgement in the case Sawdon Estate v. Sawdon. It involves a father who added two of his five children to his bank accounts, telling them that when he died, the funds were to be distributed equally among all the five children.
The deceased died in March 2007. He had seven bank accounts and, between 2004 and 2006, following the death of his wife, he added two of his five children to the bank accounts. The seven bank accounts contained just over $1 million.
The deceased made a Will in 2006, and his Lawyer directed him also to make a declaration of trust so that, on his death, the funds would pass as he wanted.
In his Will, each child was given the greater of $100,000 or the largest amount owing on mortgages that the deceased held on the homes of two of his children (the ones he added to the accounts).
The Watch Tower Bible and Tract Society of Canada was bequeathed the share of any of the five children who had predeceased the father without being survived by children. Watch Tower, the registered charity representing Jehovah’s Witnesses in Canada, was also in the Will given the residue of the Estate.
After his wife died, the father also went to his bank (CIBC) and discussed adding his children to his accounts. The bank employee advised him that he could set up a joint account with or without the “right of survivorship.”
He chose accounts with the right of survivorship, meaning that the funds would pass directly to the two children on his death.
Watch Tower claimed that when the father died, the bank account funds fell into his Estate and so should go to Watch Tower. Meanwhile, the two children who were added to the account claimed that the funds should instead go to the five children in equal shares.
At the Trial (in the Ontario Superior Court), an unusual event happened. The Lawyer for the father testified, but it turned out that he was an “elder” with the Jehovah’s Witnesses and had acted as their Counsel in the past. Apparently, he did not disclose that to the deceased when making the Will.
The Court held that the bank account funds were not part of the Estate. Watch Tower appealed.
The Court examined and considered the Pecore case at length. But its analysis was different from the typical sort of analysis in these cases.
The Court said that when the father created the joint accounts with his sons, he also created a trust. The five children were the beneficiaries, and the two sons added to the accounts became the “Trustees.” They held the funds in trust for the deceased’s five children in equal shares.
Many parents, once they know about Probate costs (not just the provincial government Probate fees but the overall costs), will try to minimize them. It’s natural for parents to try and transfer funds to their children without the inconvenience and cost of Probate. It won’t apply to all families, for various reasons.But, having to Probate a Will, though it costs money, is not “the end of the world.” It depends on your family’s circumstances.
Certainly, with bank accounts (and land), it is far easier to make a sound plan and add children as joint account holders. Done with care, the funds will pass to the parent’s children relatively quickly and with minimal cost.
Now, enjoy the Canucks’ game (against San Jose)!