Case Comment Pecore v. Pecore, 2007, SCC 17 - Stewart McKelvey

Case Comment
Pecore v. Pecore, 2007, SCC 17
On May 3, 2007 the Supreme Court of Canada released its decision in the case of Michael
Pecore v. Paula Pecore and Shawn Pecore along with the companion decision of Madsen Estate
v. Saylor, 2007 SCC 18. Both decisions had been anticipated for several months by estate
litigation practitioners. The clear reasons of the Court on the issues surrounding joint bank
accounts, a particularly vexing issue for estate lawyers, will be most helpful in clarifying the law
in this area.
The Pecore decision addressed questions involving joint bank and investment accounts where
only one of the account holders deposits funds into the account. From an estate planning
perspective, these types of accounts are widely used between elderly parents and their adult
children for estate planning and financial management reasons. Generally, the terms of the
bank’s account agreement will provide for a right of survivorship to either account holder upon
the death of the other. The vesting of legal title to the surviving joint account holder was never
in question, but problems have arisen in analyzing whether the beneficial interest in the account
would also pass to the survivor or whether the survivor would hold the asset in resulting trust for
the estate of the deceased joint holder.
In the Pecore case, a father had put approximately one million dollars of assets in investment and
bank accounts held jointly with his daughter Paula. Paula was close with her father and was
financially dependant upon him. Her father had been told by his financial advisor that joint
accounts could avoid probate fees and taxes and assist in the administration of his estate. He
continued to use and control the accounts after they were made joint and he declared all taxes on
the income generated from the assets. Paula did withdraw funds from the accounts, but only if
she notified her father before doing so. In his will, her father left the residue of his estate equally
between Paula and her husband, Michael. Paula and Michael later divorced and the dispute that
made its way to the Court arose during their matrimonial property proceedings.
The legal questions involved in the Pecore decision relate to the presumptions of resulting trust
and advancement. In a clearly and succinctly written decision, Justice Rothstein provided
reasons on behalf of himself and McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps,
Fish, and Charron JJ. Abella J. reached the same result, but for different reasons.
Historically, equity presumed that a gratuitous transfer from one person to another created a
resulting trust and the onus is then on the transferee to rebut the presumption of trust. However,
when the gratuitous transfer was from a father to a child, equity presumed that the parent was
advancing the child in life and therefore the party challenging the transfer has the onus to rebut
the presumption of a gift. Although not directly at issue on the appeal, Rothstein J. held that
where it applies, the presumption of advancement applies equally between mother and child as
with father and child.
However, while the presumption of advancement was held to continue to apply between parents
and minor children, the court has revised the law in Canada to do away with the presumption of
advancement as between parents and adult children, regardless of any financial dependency of
that child. Instead, the rebuttable presumption of resulting trust applies to such gratuitous
transfers. In particular, the Court struggled with the question of whether the presumption should
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continue to apply to adult dependant children. The issue of financial dependency remains a
strong factor to consider when assessing the evidence required to rebut the presumption of trust.
The normal civil standard of a balance of probabilities is required to rebut both the presumption
of trust and the presumption of advancement.
In reaching this decision, Rothstein J. considered the question of whether the transfer of a
survivorship interest is testamentary or inter vivos in nature. The Court held that the transfer is
inter vivos as the addition of another joint holder on the account effectively transfers the
survivorship interest in the account (whatever that might be) at the time of the original account
holder’s death. Not addressed conclusively by the Court was whether the balance in a joint
account is part of a deceased’s estate for probate tax purposes when the transferee holds that
balance on resulting trust for that estate. In my opinion, the Court’s clear finding that the
transfer of the joint interest in the account is inter vivos in nature means that the balance in that
account is therefore outside of the deceased’s probatable estate, notwithstanding that it may be
distributable in the same manner as the residue of the estate.
Because the decision retains rebuttable presumptions that apply in varying circumstances,
questions involving joint accounts will still need to be resolved on a case by case basis, having
regard to the facts of each case. Although the elimination of the presumption of advancement
applicable to gratuitous transfers between parent and an adult child has shifted the burden, a
factual analysis will still need to be conducted. In order to assist counsel in that respect,
Rothstein J. addresses several factors that a trial court would look at when assessing the facts of
each case, none of which will be determinative of any particular case. These include:
1. Evidence subsequent to the transfer – evidence related to the intention of the transferor at
the time of the transfer is relevant, even if that evidence arises subsequent to the transfer,
such as by a subsequent statement or declaration by the transferor;
2. Bank documents – a court can consider statements in banking documents that suggest the
transferor’s intent with respect to the beneficial interest in the account;
3. Control and use of the funds in the account – evidence relating to who uses and controls
the account during the transferor’s lifetime was held to be of marginal assistance to the
Court. Rothstein held that “… the fact that a transferor controlled and used the funds
during his or her life is not necessarily inconsistent with an intention at the time of the
transfer that the transferee would acquire the balance of the account on the transferor’s
death through the gift of the right of survivorship” (para. 66);
4. Granting power of attorney – it was often felt that a transferor was more likely to have
intended to gift the beneficial interest in an account if the transferee also held a power of
attorney which would have otherwise allowed the attorney to access the account for the
donor’s benefit. Rothstein J. concludes that this is a factor that the trial judge can
consider in determining the transferor’s intention, but notes that it is “… entirely
plausible that the transferor granted power of attorney and placed his or her assets in a
joint account but nevertheless intended that the balance of the account be distributed
according to his or her will” (para. 68);
5. Tax treatment of joint accounts – the Court also held that whether the transferor intended
to pay taxes on the income earned in the joint account during his or her lifetime is not
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determinative absent of other evidence. However, this is a factor to be considered. The
Court also held there was no inconsistency with the transferor continuing to pay tax but
still intending to make a gift of the residual interest in the account given that the nature of
the gift is a gift of the residual interest and not an immediate gift of the equitable interest
which would trigger a disposition for tax purposes at the time the transferee is added it as
joint account holder.
Based on these specific factors in the Pecore case, the Court dismissed the appeal of Michael
Pecore from the original finding that in the assets in the account passed to Paula Pecore upon her
father’s death. While the trial judge did err in applying the presumption of advancement rather
than the presumption of resulting trust, the facts clearly supported Paula’s father’s intention to
pass the survivor interest in the accounts to Paula upon his death.
In her concurring reasons, Abella J. reached the same result, but would have preserved the
presumption of advancement to all gratuitous transfers from parents to children, regardless of age
or dependency.
By clarifying the appropriate presumptions that will apply to the increasingly common practice
of adding adult children as joint holder of investment and bank accounts, and by providing some
analysis of the various factors that the trier of fact will need to assess in order to determine
whether those presumptions have been rebutted, Rothstein J.’s clear and concise reasons have
certainly assisted in the advancement of this area of the law. Nevertheless, the best practice in
these types of situations is to have the transferor clearly record his or her intention with respect
to the accounts in writing, either by appropriate statements in his or her will or by a separate
deed of gift or declaration or trust confirming the intention of both the transferor and the
transferee. Only this way will clients have true certainty that their wishes will be followed upon
their death and that the costs related to the administration of their estate will be kept to a
minimum.
Prepared August 2007, by Richard S. Niedermayer of Stewart McKelvey.
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