Entering joint tenancy ownership is a common and effective tool used by estate planning professionals to avoid probate. While relatively straightforward to implement, this strategy should not be used without serious consideration of the various pitfalls that can arise. In August of 2019, the Supreme Court of British Columbia released its decision in Petrick (Trustee) v. Petrick, 2019 BCSC 1319. This case serves as an important reminder of the unintended consequences that can arise after naming someone as joint tenant of your property, and the considerations you should raise prior to doing so.
In Petrick, Rock Petrick’s mother, Ms. Chilton, purchased a condominium in New Westminster (the “Property“) using her own funds, but a mortgage was granted to both her and Mr. Petrick. Ms. Chilton made the majority of the mortgage payments and lived in the Property. Title to the Property was registered in both Mr. Petrick and Ms. Chilton’s names as joint tenants.
Ms. Chilton did not intend on sharing the Property with her son during her lifetime. However, she wanted to ensure that the Property would transfer to her son without probate upon her death. When Mr. Petrick’s financial situation deteriorated, the Property was transferred into Ms. Chilton’s name solely. Mr. Petrick’s trustee in bankruptcy claimed that this transfer was a fraudulent conveyance meant to defraud his creditors. Justice Francis was tasked with deciding if Mr. Petrick had a beneficial interest in the Property through joint tenancy ownership.
The Court looked to the Supreme Court of Canada decision in Pecore v. Pecore, 2007 SCC 17, which established the following three types of ownership derived through joint tenancy:
- A true joint tenancy, where the joint tenants are each owners of the whole and enjoy the full benefit of ownership;
- A resulting trust, where only one tenant has a beneficial interest and the other, usually a gratuitous transferee, holds title in trust and has no beneficial interest; or
- The “gift of the right of survivorship” wherein a joint tenant is gratuitously placed on title with no beneficial interest in the property during the lifetime of the donor but if the donee survives the donor, the donee will receive the entire property by right of survivorship.
Following these guidelines, the Court determined that Mr. Petrick did have a beneficial interest in the Property and that he was a true joint tenant. This was because Ms. Chilton’s intention was for Mr. Petrick to inherit the Property on her death while avoiding probate, and because Mr. Petrick contributed to the Property directly by being a co-borrower on the mortgage and making mortgage payments. Given the foregoing, it is clear that Mr. Petrick’s interest in the Property was not established through a gratuitous transfer. The transfer of the Property back to Ms. Chilton was therefore done to defeat creditors and the Court found this to be a fraudulent conveyance.
Ms. Chilton’s decision to name her son as joint tenant was made with the best of intentions but left the Property open to risk when Mr. Petrick’s financial situation deteriorated. Estate planners considering using a joint tenancy must ensure their client is aware of the potential pitfalls that can arise, and how to avoid them wherever possible. Petrick serves as an important reminder that, although seemingly straightforward, estate planning strategies involving joint tenancy must be carefully implemented to avoid unexpected issues arising in the future.
Written by Isabel Romeral and Cameron Smith