Allowing Paula to rely on presumption of advancement because the presumption is only available to a dependant minor child; and

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1 Pecore v. Pecore by Ellen Bessner Facts: 1. Hughes, Paula s ageing father, planned for Paula s financial security by designating her as the beneficiary of his RRSP, and life insurance policies. Following this, he gratuitously placed the bulk of his assets (approximately $950,000) in joint accounts with her. To avoid capital gain consequences, he advised his financial institutions not to adjust the cost base for the investments because he retained 100% ownership, and explained that the joint ownership was for probate purposes only. Hughes retained control of the accounts, and declared and paid all taxes on the income made from the assets in the accounts. Hughes subsequently rewrote his will naming Paula as sole executrix, Paula and Michael (Paula s husband at the time) as residuary beneficiaries, and removing his other two daughters as beneficiaries. There was no mention of the accounts in the will. Hughes also clearly expressed to his lawyer that upon his death, his investments would devolve to Paula. Despite having three children, Hughes focused his financial help on Paula and her family. Upon Hughes death, Paula redeemed the balance in the joint accounts on the basis of the right of survivorship. Paula later divorced Michael and a dispute over the accounts arose during their matrimonial property proceedings. Michael argued that Paula held the balance in the joint accounts in trust for the benefit of her father s estate, and as a consequence, the assets formed part of the residue of the estate and should be distributed according to the will. Definitions: Presumption of resulting trust: Equity presumes bargains, not gifts. Where a transfer is made for no consideration, the onus is placed on the transferee to demonstrate that the gift was intended. Presumption of advancement: Presumes a gift in the case of gratuitous transfers between certain individuals, namely father and children, and husband and wife. Note: The presumptions are rebuttable presumptions. Prior Proceedings: Superior Court of Justice 2. Held in favour of Paula. Karam J. concluded that the evidence failed to rebut the presumption of advancement. Therefore, the money in the joint accounts belonged to Paula, and was not being held in trust by Paula for the benefit of her father s estate. The evidence clearly indicated Hughes intention to give his daughter beneficial ownership of the assets. 3. Michael appeals. He argues that judge erred in; Allowing Paula to rely on presumption of advancement because the presumption is only available to a dependant minor child; and Ignoring evidence that rebutted any presumption of gift.

2 - 2 - Court of Appeal Issues: 1. Does a presumption of advancement or presumption of resulting trust apply in this case? 2. Did Hughes intend to give Paula beneficial interest in his investment when he placed them in joint ownership? Held: Appeal dismissed 1. The presumptions of resulting trust and advancement become relevant only if, after considering all the evidence and circumstances surrounding the transfer, a court is unable to draw a conclusion about the transferor s actual intention. This may occur in a situation where the evidence is evenly balanced or where there is no evidence of actual intention. The presumptions are irrelevant in this case because there was ample evidence of actual intention. 2. Trial judge was correct in concluding that Hughes intended to gift his investments to his daughter. Hughes had actual intention to give Paula beneficial interest in his investments when he placed them in joint ownership. Reasons: 1. Hughes intention to gift the investment to Paula was confirmed by one (the only one) of Paula s sisters who testified at trial. 2. Hughes statements and conduct support an actual intention to give Paula beneficial ownership in the investments: (c) (d) Hughes effected the transfers over several years and after he had already named Paula as sole beneficiary of his RRSP and insurance policy. Hughes amended his will after he had transferred the investments, naming Michael as a residuary beneficiary, knowing that the investments were excluded from his estate and his only remaining assets were minimal. Hughes was familiar with concepts of joint ownership, and advised his lawyer when he changed his will that he had already transferred his investments into joint ownership so that they would devolve outside the estate. Hughes sought legal and accounting advice regarding the transactions. 3. The transfer is also consistent with Hughes relationship with Paula and pattern of conduct towards her: Hughes expressed concern for his daughter with respect to money. Hughes gave Paula his power of attorney, which would make joint ownership in the investments unnecessary unless he intended something more.

3 Michael s argument that the trial judge gave too little weight to certain evidence is a matter of the trial judge s discretion, and deference should be paid to the trial judge. 5. Letters to financial institutions, which stated that the funds are not being gifted to Paula, was not evidence of any contrary intention on part of Hughes. It was done for tax purposes on the basis of professional advice. 6. Hughes agreement with Paula that he would remain the primary consumer of the money during his lifetime is not inconsistent in this case with an intention to gift assets. Furthermore, Paula was able to withdraw money for her personal use before her father died. 7. In the will, there was a bequest to Paula s daughter to receive a car. Michael argued that this was evidence of an intention for the investments to form part of Michael s residue because otherwise, there would not have been sufficient funds to satisfy the bequest. This argument is rejected because if the residue was insufficient for the stated purpose, Paula had sufficient funds from the investments to buy her daughter a car. 8. Costs: the trial judge properly exercised his discretion in denying costs to both parties. Costs of this appeal are awarded to the respondent. Supreme Court of Canada: Issues: 1. Do the presumption of resulting trust and advancement continue to apply in modern times? 2. If the presumptions apply, on what standard will they be rebutted? 3. How should courts treat survivorship in the context of a joint account? 4. What evidence may courts consider in determining the intent of the transferor?

4 - 4 - Held: Appeal Dismissed 1. Majority: The trial judge erred in applying the presumption of advancement because Paula was not a minor child. However, the error did not affect the decision. The trial judge found ample evidence in support of Hughes intention to have the balance in the joint accounts go to Paula upon his death through survivorship. Had the trial judge applied the presumption of resulting trust, the result would have been the same as proof that a gift was intended would have been found on the evidence. 2. Minority: Abella J. reached the same conclusion as the majority, albeit through a different analysis. Abella J. concluded that the trial judge applied the correct legal presumption to the facts of the case. Unlike the majority who maintained that the principal justification for the presumption of advancement is the parental obligation to support their dependant children, Abella J. concluded that the rationale for the presumption is grounded in parental affection. Abella J. agreed with the majority of the Ontario Court of Appeal in Madsen Estate on this point (Para 96 Pecore; Para 21 Madsen), asserting that because the justification for the presumption of advancement is parental affection, it does not need to be limited to non-adult children. Reasons: (majority) 1. The presumption of advancement doesn t apply between parents and their independent adult children. Parental obligation to support their dependant children (and not parental affection) is the basis upon which to apply the presumption of advancement. Thus, in the case of adult children, where the actual intention of the deceased cannot be determined on the evidence, the presumption of resulting trust should apply. Although parental affection is not a basis upon which to apply the presumption of advancement, the quality of the relationship between the transferor and transferee is evidence that can be helpful in determining whether the presumption of resulting trust has been rebutted. 2. The presumption of advancement does not apply in the case of parents and adult dependant children. The lack of certainty in determining the circumstances that make someone dependant for the purpose of applying the presumption, is of strong enough concern to deny the application of the presumption to this type of situation (Para 40). nb. at trial, trial judge justified applying the presumption of advancement on basis that Paula was dependant on her father financially. 3. While Hughes maintained control of the accounts and used the funds for his benefit during his life, his concern in providing for Paula after his death is consistent with an intention to gift a right of survivorship. 4. The statements Hughes made to his lawyer, years after the actual transfer of assets into the joint accounts, were held to be reliable. The fact that the accounts were not mentioned in Hughes will, nor discussed with his lawyer when asked about all other assets, was further evidence of Hughes intention to gift a right of survivorship. 5. The letters to the financial institutions, stating that the transfers were not gifts to Paula, were done simply to avoid triggering an immediate deemed disposition and avoid the resulting tax consequences. This was not inconsistent with Hughes intention.

5 The courts must apply and weigh all evidence relating to the actual intention of the transferor to determine whether the presumption has been rebutted. A determination will depend on the facts of each case. Rothstein J., for the majority, addressed particular types of evidence at issue that have been subject to divergent approaches by courts. They include: (c) Evidence of Subsequent Transfer: Evidence of intention that arises subsequent to a transfer should not automatically be excluded if it does not comply with the Shephard v. Cartright rule (see Para 56). However, the 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 the weight that should be given to it. Bank Documents: Banking documents may be detailed enough to provide strong evidence of the intentions of the transferor regarding how the balance in the account should be treated on his or her death (Para 61). The clearer the evidence in the bank documents in question, the more weight that evidence should carry. Control and use of the funds in the account: Control and use of funds should not be ruled out in the ascertainment of the transferor s intention, but the evidence may be of marginal assistance, and without more, will not be determinative. Rothstein J. sites three reasons for this (see Para 64-66). nb. Court of Appeal in this case concluded that control is not inconsistent in this case with an intention to gift assets. However, in Madsen Estate, the Court of Appeal relied on the evidence of control and use of funds to show that the father did not intend to create a beneficial joint tenancy. (d) Granting Powers of Attorney, and Tax treatment of joint accounts: Evidence will not be determinative and courts should use caution when relying on this type of evidence. The trier of fact has the discretion to consider it in determining the transferor s intention. Obiter: 1. Majority: Do the presumptions of Resulting Trust and Advancement Continue to Apply in Modern Times? (ii) The common law presumptions continue to have a role to play in disputes over gratuitous transfers. The presumptions provide a guide for courts in resolving these kinds of disputes, and a measure of certainty and predictability for individuals who put property in joint accounts or make other gratuitous transfers. The presumption of advancement should also apply between mothers and their children. Rothstein J. comments that women today have both the means and obligation to support their children, and that they are no less likely to intend to make gifts to their children than fathers.

6 - 6 - On what standard will the presumptions be rebutted? Court agrees with the weight of recent authority that the civil standard is the appropriate standard to employ. (c) How should the courts treat survivorship in the context of a joint account? (ii) The rights of survivorship vest when the joint account is opened. The gift of those rights is therefore inter vivos (as opposed to testamentary) in nature. (Para 48). This has been the conclusion of the weight of judicial opinion recently. The nature of a joint account is that the balance will fluctuate over time, and a gift in these circumstances is not a specific amount of money, but rather, the transferee s survivorship interest in the account balance (Para 50).