Documenting Intention After Transfer

As more and more people look to joint tenancy as a “cheap” or “self-help” way of estate planning, we continue to raise concerns about the disadvantages of joint tenancy, including loss of control, tax consequences, and creating conflict between family members after death.

It is possible, though not ideal, to reduce problems associated with joint tenancies by recording the intention behind the joint tenancy, and this can be done even after the transfer has been completed. As a result, clients who disclose that they have made a transfer of assets into joint tenancy should be urged to seek advice about recording those intentions.

Importance of Recording Intention

The primary reason that joint tenancies create so many problems is the ambiguity in the effect of putting an asset into joint names. Does the new joint owner become a full owner of the asset, or have they been added just to avoid probate or to assist with managing the asset?

The intention of the person transferring the property into joint tenancy is the key for determining the true ownership of the asset, which informs the right to control the asset, tax liability for the asset, and the ownership of the asset after the transferor’s death. As a result, one way to reduce (although not eliminate) the potential for these negative effects is to make sure that the intention behind the joint tenancy is properly recorded.

Recording Intention “After the Fact”

Ideally, intention will be recorded at the time the asset was transferred into joint names. However, in many cases a legal or financial advisor only becomes aware that the client has transferred an asset into joint names after the fact. Can intention be recorded after the fact of the transfer?

In the leading case of Pecore v Pecore, the Court rejected an old rule that evidence of intention subsequent to the transfer was inadmissible, instead ruling that such evidence could be considered – but only with appropriate caution. Since the key was intention at the time of transfer, judges need to guard against subsequent evidence that might reflect not what the intention was at the time of transfer, but rather a change in intention subsequent to the transfer.

The McKendry Case

The recent case of McKendry v McKendry highlights the tension inherent in considering evidence subsequent to the transfer. In that case, a mother had transferred property into joint names with her son in January 2008. There was clear evidence that, when she added him to title, she intended that he hold his interest in trust for her while she was alive, and that on her death he was to share the land with his siblings – i.e. it was not originally supposed to be a gift of the land to him alone. She later changed her mind and decided that she wanted him to have the property after she died. In December 2010, she signed a document cancelling the trust arrangement, and stating that she now wanted the son alone to receive the land when she died, as a gift from her (i.e. he did not need to share with his siblings).

The trial judge rejected the December 2010 document, holding that this was evidence of a changing intention and did not reflect intention at the time of the transfer, as per the warning given in Pecore. The Court rejected the alternative argument that the December 2010 document had the effect of “perfecting” a gift to the son that had been partially made by the initial transfer in 2008.

The Court of Appeal, however, overturned the trial decision. While the December 2010 document may have been evidence of changing intention, it clearly demonstrated that the mother now wanted to give the right of survivorship in the property to the son, such that he would receive the beneficial interest upon the mother’s death. By first adding him as a joint tenant, and then signing the December 2010 document, the mother had done “everything necessary” to give the beneficial interest to the son.

The Court of Appeal’s decision in McKendry is of significant value, as it demonstrates that it remains possible for a person, even after the fact, to clarify or even change his or her intentions with respect to the property held in joint tenancy by properly documenting and recording them. It avoids the inflexible situation that would have resulted from the trial decision, where even relatively clear subsequent evidence could be ignored.

Professionals should urge their clients to record the intentions underlying joint tenancies, even those that have already been completed, since even subsequent recording can help to clarify the effect of the joint tenancy and to reduce the chance of a dispute.