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Be clear about intentions when transferring property

2017-09-15

Jonathan Miller

Parents transferring property to their children to avoid probate fees on their estate should make their objectives crystal clear to minimize problems down the road, says Toronto civil and commercial litigator Jonathan Miller.

“When you’re giving your instructions to your lawyer, be very clear about what you want to do and why,” says Miller, an associate with the Toronto office of Shibley Righton LLP.

Parents often give property to a child to hold in trust so it won’t be subject to estate administration taxes after they die, Miller tells AdvocateDaily.com.

In Ontario, these taxes, also called probate fees, amount to $5 for each $1,000, or part thereof, on the first $50,000 of the value of the estate, and $15 for each $1,000 or part thereof for anything above $50,000, according to the provincial government.

Often, a parent will put the property in both their name and the child’s, creating a joint tenancy. That means when the parent dies, the child can register an application for survivorship to become sole owner, Miller says.

But unless otherwise stated, the presumption in law is that the property was not transferred for the sole benefit of the child, but is held in what is known as a “resulting trust” for the estate, to be distributed according to the parent’s will after his or her death, he adds.

“Mom says, ‘Look, I don’t want you to have to pay a bunch of tax from my estate on this property. I’m going to transfer it to you, Son. But, Son, at the end of the day, that’s still my property. I want to be able to give it away in my will,’” Miller offers as an example.

But without proof of the parent’s intention, disputes can arise after death, he says. Legal battles could significantly reduce the value of the estate, which will likely pay for most of the court costs, he says.

The Supreme Court of Canada in this 2007 case, set out the parameters for determining whether the transfer of property was for the sole benefit of the child or meant to be part of the estate.

The court noted that although there is a presumption that the adult child is holding the property for the estate in a resulting trust, quite often the parent’s intention was to give it to the child, Miller notes. The court held that the main question in resolving any disputes is the parent’s intention at the time of the transfer, he adds.

“A great amount of litigation can still arise around, ‘Well, what did Mom actually intend?’” Miller says.

The first place to look for her intentions is in the lawyer’s file, he says. “Quite often, the lawyer’s file is one of the easiest ways because they’re telling their lawyer, presumably free of influence from anybody else, this is what I wanted and this is why,” he says.

Without such clear evidence, each family member can have a different story about what the parent intended, he adds.

“One says, ‘Mom told me we were all going to get the property.’ The other one says, ‘No, Mom told me she wanted me to have the property and so that’s why she gave it to me.’”

Similar disputes can occur between spouses, friends and anyone else expecting something from the will, he says.

Fortunately, steps can be taken to minimize such problems, Miller says:

Lawyers should ask questions and take good notes of their clients’ wishes beyond the simple desire to avoid probate fees, he says. For instance, lawyers could ask: “You’re making a will and transferring property at the same time. What’s your intention for the property? Are you meaning for your son to get it? Do you want it to be split between your kids under your will?”

Children, for their part, should encourage their parents to make their wishes known, but must avoid exerting what could be seen as undue influence, he says. “You can’t say, ‘Mom, I need you to sign this and say you intended to give me the property.’”

The best approach for an adult child is to say something like: “Look, Mom if you want to give someone the property, when you’re talking to your lawyer make sure you tell him or her why you want to do this and what you want to do.”

And testators need to communicate their intentions, not only to their lawyer but to their loved ones, despite the difficulties, he says.

“It’s uncomfortable and they don’t want to cause a stir. But the reality is, quite often, if you don’t talk to them up front, it’s just going to create problems down the road.”

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2017-09-15