DATE: 20050908
DOCKET: C41774
COURT OF APPEAL FOR ONTARIO
WEILER, ROSENBERG and LANG JJ.A.
B E T W E E N :
MICHAEL PECORE
Andrew M. Robinson and Megan Mackay for the appellant
Plaintiff (Appellant)
- and -
PAULA PECORE and SHAWN PECORE, TAMMIE PECORE and DANA BOULANGER
Bryan C. McPhadden for the respondents
Defendants (Respondents)
Heard: April 20, 2005
On appeal from the judgment of Justice Norman M. Karam of the Superior Court of Justice dated February 20, 2004.
LANG J.A.:
[1] This appeal arises from a dispute as to who became entitled to Edwin Hughes’s investments upon his death. The dispute between Hughes’s youngest daughter, Paula Pecore, and her husband, Michael Pecore, arose in the course of Michael’s[^1] divorce proceeding against Paula, in which he also sought spousal support and a division of assets.
[2] Paula bases her claim on a right of survivorship arising from Hughes’s transfer of his investments, which totalled $949,674.87, into joint ownership with Paula in the years before his death. Michael bases his claim on his position as one of the two joint residuary beneficiaries under Hughes’s will; Paula was the other joint residuary beneficiary. Karam J. held in Paula’s favour on two bases: first, on the basis of the presumption of advancement and, second, on the basis of Hughes’s actual intention to benefit his daughter. Michael also appeals the decision to deny him costs of the litigation; he seeks those costs out of the estate.
[3] For the reasons that follow, I agree with the trial judge that Hughes intended to give Paula beneficial interest in his investments when he placed them in joint ownership. As a result, it is not necessary to rely on the presumption of advancement.
A. Overview
[4] Since this case deals with whether Hughes intended the investments to be a gift to Paula made during his lifetime, trial counsel raised the applicability of the presumptions of resulting trust and advancement.
[5] The presumption of resulting trust arises when an individual transfers an asset into joint ownership with another who has not contributed to the asset. In such a case, equity presumes that the individual transferring the asset intended to transfer legal but not beneficial title: “The presumption of resulting trust arises because equity does not assume a gift when a gratuitous transfer of property has been made. Thus, equity places the burden of proof on the transferee to prove a gift – that is, to provide evidence of an intention contrary to the presumption that a trust was intended” (Eileen E. Gillese, The Law of Trusts, (Concord: Irwin Law, 1997) at p. 97).
[6] However, there is an exception to the presumption of resulting trust; namely, the presumption of advancement, which presumes a gift in the case of gratuitous transfers between certain individuals. Professor Gillese (as she then was) noted that “the identity of the parties is highly relevant”: where a gratuitous transfer of property occurs between a father and child “[i]nstead of raising the presumption of resulting trust, the law presumed a gift” (page 103).
[7] Thus, if the presumption of resulting trust applies, it will be presumed that Hughes intended Paula to hold the investments in trust for him and Paula will have the burden of establishing to the contrary. On the other hand, if the presumption of advancement applies, the burden lies on Michael to establish that Hughes did not intend to gift both the legal and the beneficial ownership of the investments to Paula.
[8] The appellant questions whether the presumption of advancement remains relevant in today’s society, particularly with respect to transfers to independent adult children. If the presumption does remain relevant, the appellant questions its application on the facts of this case, where there was a transfer of significant assets by a father to a preferred daughter to the apparent exclusion of a favoured son-in-law.
[9] Since both presumptions can be rebutted by evidence of actual intention, in my view, the presumptions become relevant only if, after considering all the evidence and the circumstances surrounding the transfer, a court is unable to draw a conclusion about the transferor’s actual intention. Only in such a case, would a court resort to the presumptions to determine the issue. In a case such as this, which involves joint ownership of assets, resort to the presumption will rarely, if ever, be necessary.
[10] I intend to address the evidence of Hughes’s actual intentions before discussing why it is unnecessary to resort to any presumptions about those intentions.
B. Facts
[11] As a result of a car accident, Michael suffered from quadriplegia, for which he was awarded compensation. That compensation included a $250,000 lump sum award and a modest disability annuity. After receiving that award, Michael hired Paula as his caregiver. Within a short time, Michael and Paula married and Michael adopted Paula’s two children, Shawn and Tammie. Because their income was limited to Michael’s annuity and Paula’s part-time employment income, the couple encroached on Michael’s lump sum to allow Paula to assume her primary role as caregiver for Michael, the children, and the home. Over the approximate twenty years of their marriage, Paula and Michael lived modestly.
[12] In contrast, Hughes, a retired miner, lived comfortably. He capably and successfully managed his own investments, with advice from his financial adviser and his accountant, and accumulated about $950,000 in investments. As a result, he was in a financial position to help Paula and her family. His help included paying for improvements to the Pecore home and buying vehicles for Paula and Michael as well as for Shawn. He also paid Shawn’s student loans and later retained Shawn to give him financial advice.
[13] Hughes concentrated his financial help on Paula and her family even though Paula was only one of his three daughters. His other two daughters, Deborah and Lesley, both had pensions, were employed and had partners who were employed so that Hughes was not concerned about their financial welfare. In contrast to her sisters, Paula had minimal income-earning skills; had devoted many years to Michael’s care; was experiencing some health problems, and had no financial security. Hughes explicitly expressed both his concern for Paula’s financial welfare and his intention to take care of her financially.
[14] In the early to mid-1990s, after Hughes’s second wife was admitted into long-term care with Alzheimer’s disease and Hughes knew that she was unlikely to survive him, Hughes took specific steps to plan for Paula’s financial security. First, he designated Paula as the beneficiary of both his Registered Retirement Savings Plan and of his life insurance, which had a combined value of $277,167.68. Those designations are not challenged. Second, he opened a mutual fund account in joint ownership with Paula.
[15] Third, as part of his plan, over time and on different occasions, Hughes transferred investments that he had held jointly with his ill wife first into his name and then into joint ownership with Paula. About two years before he died, Hughes transferred the bulk of his investments into joint ownership with Paula. His planning for Paula’s financial security had accelerated after he suffered an aneurysm and was diagnosed with cancer.
[16] Hughes learned that transferring his investments to his daughter (as opposed to his spouse) could trigger a deemed disposition, which would result in capital gains consequences. To avoid those consequences, he wrote the financial institutions telling them not to adjust the cost bases for the investments because he retained 100% ownership. He explained that the joint ownership with Paula was for probate purposes only.
[17] After completing the transfer of all his investments, Hughes rewrote his will to name Paula as sole executrix; remove his other two daughters as beneficiaries; leave specific bequests of items, and name Paula and Michael as his residuary beneficiaries. When he executed his will, Hughes specifically told his lawyer that his investments would devolve to Paula outside his estate.
[18] As Hughes’s health deteriorated, he moved in with Paula and Michael. A few months later, and all within a five-month span, Hughes’s wife died, Michael moved into a long-term care facility because Paula could no longer care for him, and Hughes died. After this, Paula redeemed the joint investments.
[19] Two years later, after Paula and Michael’s marriage permanently broke down, Michael moved out of the nursing home into a new home with his fiancée. Michael started divorce proceedings against Paula in which he claimed spousal support and a division of assets. During discoveries in that proceeding, Michael claimed that he first learned that he was a residuary beneficiary under the Hughes will and amended his petition to seek a declaration that the investments formed part of the residue of the Hughes estate.
C. The Trial Decision
[20] The trial judge first turned to the presumptions. He held that the presumption of resulting trust did not apply; rather, the presumption of advancement applied so that Hughes was presumed to have given Paula the investments as gifts. He concluded that Michael had not rebutted that presumption.
[21] In determining that the presumption of advancement applied and not the presumption of resulting trust, the trial judge considered the closeness of the father-daughter relationship as attested to by several witnesses and concluded that he “cannot envisage a stronger set of circumstances to justify applying the presumption of advancement.”
[22] As the presumption of advancement was held to apply, the burden was on Michael to rebut that presumption. In deciding that Michael had failed to meet that burden, the trial judge reviewed Michael’s evidence about the close relationship he had with his father-in-law; Michael’s evidence that his father-in-law told him he intended to leave him $350,000; Hughes’s letters to the financial institutions indicating that the transfers were for probate purposes only; Hughes’s continued management of the funds post-transfer; and the contents of Hughes’s last will. While the trial judge accepted that Michael and Hughes had a close friendship, he rejected Michael’s evidence that his father-in-law said he intended Michael to have $350,000. Further, he concluded that the disclaimer letters, Hughes’s ongoing management of the fund, and his bequest to Tammie were not inconsistent with Hughes’s intention to give his investments to Paula. On this basis, the trial judge said:
I am satisfied that the evidence fails to rebut the presumption of advancement from the deceased to his daughter, and that this action in that respect must fail. In fact, I have no reservation in going farther and concluding that the evidence clearly demonstrates the intention on the part of Edwin Hughes to transfer the beneficial ownership of those assets held in joint ownership to [Paula].
[23] Michael argues that the trial judge erred in two respects. First, he argues that Paula was not entitled to the benefit of the presumption because such a presumption is only available to a dependent minor child and not to an independent adult child or, alternatively, that Michael was equally entitled to the presumption as Hughes’s favoured son-in-law. Second, he argues that the trial judge ignored evidence that rebutted any presumption of gift. I deal first with the issue of actual intention.
D. Analysis
1. The Evidence of Actual Intention
[24] Hughes’s intention to gift the investments to Paula was confirmed by his only other daughter who testified at trial. Thus, this is not a case where the transfer is challenged by a sibling, but instead it is challenged by a son-in-law, a person who, in any event, does not traditionally benefit from the presumption of advancement.
[25] Before Hughes made Michael a joint residuary beneficiary of his will, Hughes signed documents with various financial institutions transferring his investments into joint ownership with Paula. It may be, in modern times, that such documents support an intention to make a gift of both legal and beneficial title, particularly where the documents specifically acknowledge a right of survivorship and are executed by both joint owners cognizant of the implications of the legal effect of the documents.[^2] However, while in this case at least some documents specifically confirmed that Paula was to have a survivorship interest, not all the relevant records were available at trial. In any event, the trial judge was entitled to consider all the circumstances surrounding the transfers.
[26] When determining actual intention, the court should consider such documents and other factors including the quantum of the transfer and its timing; the statements and conduct of the transferor referable to the transfer; the state of the relationship between the transferor and the transferee; any pattern of conduct on the part of the transferor relevant to the issue; the exclusion of any obvious recipient from the transfer; whether the transfer was improvident; and any other circumstance relevant to the transferor’s actual intention.
[27] In considering the circumstances of the transfer in this case, the trial judge found the evidence to be more than ample to support Hughes’s actual intention to give the investments to Paula at the time of transfer.
[28] As I have indicated, the transfers totalled $949,647.87 and comprised the bulk of Hughes’s estate. Hughes effected the transfers over several years and after he had named Paula as the sole beneficiary of his RRSP and insurance policy. Only after he transferred the investments did Hughes amend his will to name Michael as a residuary beneficiary. That change to his will was made when Hughes knew that the investments were excluded from his estate and his only remaining assets were personal property and a few thousand dollars kept in his safe.
[29] Proximate to the transfer, Hughes made statements and took actions consistent with an intention to give Paula beneficial ownership in the investments. Hughes was familiar with the concepts of joint ownership as evidenced by his earlier acquisition of investments he had held in joint ownership with his wife. In transferring his investments to joint ownership with Paula, Hughes sought and took legal, investment, and accounting advice including advice that such transfers would reduce probate taxes and would facilitate his after-death dispositions. When Hughes subsequently changed his will, he specifically told his lawyer that he had already transferred his investments into joint ownership with Paula and that they would devolve outside his estate. Hughes also knew that Paula withdrew money from the funds for her own personal use. His statements and conduct surrounding the transfer support an actual intention to give Paula a beneficial interest in the investments.
[30] The transfers were consistent with the state of Hughes’s relationship with Paula and his pattern of conduct towards her. He was close to Paula. During his lifetime he assisted her financially, visited her regularly, and lived with her and her family during the months before his death. Hughes expressed concern for Paula’s financial welfare after his death. While Paula’s sisters were excluded from the gifts, there were reasons for that exclusion including their financial self-sufficiency.
[31] In contrast, it is not surprising that Michael received none of the investments. According to four witnesses, while Hughes repeatedly expressed concern for Paula indicating that he intended to take care of her, he also said that the “system” would look after Michael. Michael’s exclusion from the investments apparently did not surprise even Michael who did not raise any question about the issue until three years after Hughes’s death. It follows that the state of Hughes’s relationship with Michael was not such that Michael expected to receive an interest in the investments.
[32] This evidence accepted by the trial judge was clearly capable of supporting the trial judge’s finding that Hughes actually intended to give Paula a beneficial interest. As well as accepting the evidence that Hughes intended to give Paula the investments, the trial judge rejected Michael’s evidence to the contrary saying:
The plaintiff testified that Mr. Hughes told him shortly after having attended at [his lawyer’s] office to give instructions for his will, that he intended to leave him about $350,000.00, because he was indebted to him for originally referring him to [his first financial adviser]. I find this evidence very difficult to accept, since it was apparently only because of the examination for discovery that the plaintiff’s status as a residual legatee was discovered. ... It is somewhat remarkable that the plaintiff is now able to recall that conversation for the purposes of this trial, but was unable to remember it or did not think it significant until informed of the contents of the will, after the discovery of his wife. Furthermore, it is highly unlikely that Mr. Hughes would have failed to indicate his intention to [his lawyer] that he intended the plaintiff to receive about $350,000.00 from his estate after his death. Accordingly, I reject the Plaintiff’s evidence on this issue. Furthermore, I find his evidence on this very important issue so incredible that I must reject any of his evidence that is inconsistent with the evidence of any other witness (para. 41).
[33] The improbability of Michael’s evidence about Hughes’s intention is confirmed by Hughes’s familiarity with the concept of joint ownership as an estate planning tool. Hughes knew that, as a result of these transfers, Paula would become an owner of the investments, just as the joint investments Hughes earlier held with his wife devolved to Hughes as her survivor. Hughes knew that on his death, the joint investments would similarly devolve to Paula, his survivor.
[34] The use of joint ownership as a tool of estate planning is to be contrasted with its use as a tool of convenience to permit a child to manage funds or to pay bills for an aged or infirm parent. That Hughes appreciated the distinction between a tool of estate planning and a tool of convenience is evident from the fact that Hughes’s also gave Paula his power of attorney. That power of attorney gave Paula the authority needed to pay bills and give instructions with respect to the investments. With that power of attorney, joint ownership of the investments was unnecessary unless Hughes intended something more: to ensure the investments were given to Paula and to avoid probate fees, both entirely legitimate purposes.
[35] While Michael argues that the trial judge ignored or gave too little weight to certain evidence, the weight to be afforded a particular piece of evidence is a matter within a trial judge's discretion. An exercise of discretion is not to be overturned simply because an appellate court might have reached a different conclusion. Rather, an exercise of discretion is reviewed with deference and can only be reversed if there has been a wrongful exercise of discretion such as when a relevant consideration is ignored or given insufficient weight: See Reza v. Canada, [1994] 2 S.C.R. 394 at 404-05: Friends of Oldman River Society of Canada (Minister of Transport), [1992] 1 S.C.R. 3 at 76-77; and Harelkin v. University of Regina, [1979] 2 S.C.R. 561 at 588.
[36] As I explain below, I have concluded that that exacting standard of review is not met in this case. Michael argues that the trial judge gave insufficient weight to three pieces of evidence: first, Hughes’s letters to the financial institutions; second, Hughes’s continued control over the investments and; third, Hughes’s bequest of a car to Tammie, a bequest which could only have been satisfied had their been money in the estate with which to buy a car.
(i) The Letters
[37] When Hughes learned that transferring assets into joint ownership with his daughter would trigger capital gains consequences, on Shawn’s advice, he signed letters prepared by Shawn directed to the financial institutions. Those letters said that the transfers were made for probate purposes and, accordingly, no changes should be made to the adjusted cost base of the investments because, he said: “I am the 100% owner of the assets and the funds are not being gifted to Paula.” Consistent with these letters, before his death, Hughes paid income tax on the monies earned by the investments, income tax that was at a higher rate than would have been the case had that income been attributed to Paula.
[38] Although these letters clearly could raise a question about Hughes’s intention, the trial judge was satisfied on the evidence that Hughes still intended to gift the investments to Paula. Further, there was no evidence that Hughes, who had made the transfers with Paula’s knowledge and consent, ever advised her of this communication or any other limitation or condition on the gifts.
[39] There was no evidence that Hughes intended to commit any illegal act by signing the letters prepared by his financial adviser. Indeed, the only evidence was that Hughes intended to defer capital gains taxes, which he was told he could legally do. There was no evidence that he intended to evade taxes. Indeed, after his death, Paula paid $180,000 to satisfy Hughes’s tax liability. In these circumstances, to the extent the matter is relevant in a challenge to the transfer by the son-in-law, the trial judge was entitled to conclude that these letters were not “inconsistent with an intention to give a joint interest in those assets to his daughter”. Any improper attempt by Hughes to defer taxes is a matter between his estate and the tax department. It is not a matter that bears on Michael’s claim against Paula.
(ii) Control over the investments
[40] After the transfers, Hughes and Paula agreed that Hughes would continue to manage the investments. Although Paula and Hughes agreed that Hughes would be the primary consumer of the money during his lifetime, Paula withdrew some money for her personal use before her father died. These agreements and understandings as to the control and use of the investments in the circumstances of this case are not surprising. While control can be consistent with an intention to retain ownership, it is also not inconsistent in this case with an intention to gift the assets. Hence, this factor was not determinative of Hughes’s actual intention.
[41] Michael also argued that Hughes’s continued control over the investments suggested that the transfers were, in substance, testamentary dispositions. Testamentary dispositions require compliance with the formalities for wills. See for example: Purchase v. Pike Estate (1991), 42 E.T.R. 75 (Nfld. S.C.) at p. 85. However, it has been accepted in recent years that a gift given in the transferor’s lifetime by means of joint ownership is a gift given at the time it is placed into joint ownership and not a testamentary disposition. After the transfer into joint ownership, both Hughes and Paula held legal title to the funds. On the death of Hughes, his interest as joint owner was simply extinguished. See Cho Ki Yau Trust, supra at para. 28; Donovan W.M. Waters, Q.C., Waters’ Law of Trusts in Canada, 3^rd^ ed. (Toronto: Thomson Carswell, 2005) at p. 401; A.H. Oosterhoff and E.E. Gillese, Text, Commentary and Cases on Trusts, 5^th^ ed. (Scarborough: Carswell, 1998) at p. 373.
[42] In the result, Michael cannot succeed on this basis.
(iii) Bequest to Tammie
[43] In his last will, Hughes expressly stated, subject to Paula’s discretion, that a car should be bought from the residue of his estate for Paula’s daughter Tammie. Michael argues that this bequest shows that Hughes intended the investments to form part of his residue because, if they did not, there would not have been sufficient funds to satisfy the bequest.
[44] I agree with the trial judge’s rejection of this argument. The bequest gave Paula sole discretion to decide whether Tammie received a car. Hughes knew that if Paula determined that Tammie should receive a car, and if the residue was insufficient for its stated purpose, Paula had sufficient funds from the investments to buy Tammie a car. Thus, it was unnecessary for Hughes to leave money in his estate for this purpose. The discretionary bequest to Tammie did not amount to evidence supporting an intention on Hughes’s part that the investments would form part of the residue.
[45] Accordingly, on the evidence at trial, the trial judge was entitled to conclude that Hughes intended to gift his investments to his daughter. He made the transfers in writing, on separate occasions over several years, fully cognizant of the implications of joint title, and with the explicit intention of benefiting his daughter. As the trial judge said, the evidence clearly demonstrated Mr. Hughes’s actual intention.
2. The Presumptions
[46] In this case, presumed intention was irrelevant. Presumed intention, which is presumed from the nature of the transaction, is only relevant when evidence of actual intention is evenly balanced, or when there is no evidence of actual intention. Hence there was ample evidence of actual intent and it was unnecessary for the trial judge to resort to the presumptions.
E. Disposition
[47] For the reasons given above, I would dismiss this appeal.
F. Costs
[48] The trial judge denied Michael costs out of the estate or from Paula. He did so because, on the issues raised in the divorce proceeding, success was divided; because the respondents made an offer to settle that exceeded the result; and because the judge found Michael’s conduct to be “less than candid.” Although there appears to have been candour issues on the part of both Michael and Paula, I am satisfied, in the circumstances of this case, that the trial judge properly exercised his discretion in denying costs to both parties. I see no reason to interfere with that disposition.
[49] Accordingly, the appeal is dismissed. We have received and considered the parties’ written submissions on costs of the appeal. Those costs are awarded to the successful respondent, Paula Pecore, fixed in the amount of $17,000 inclusive of GST and disbursements.
Released:
[^1]: Since Michael and Paula Pecore share the same surname, for ease of reference I refer to them by their first names.
[^2]: The evidentiary value of such documents signed with financial institutions when setting up joint accounts was questioned in Mailman Estate (Re), [1941] S.C.R. 368. The evidentiary value of such institutional documents is under consideration by this court in another case, Saylor v. Brooks, C41921 and C42850, reserved June 30, 2005, which is currently under reserve. See also Cho Ki Yau Trust (Trustees of) v. Yau Estate (1999) 29 E.T.R. (2d) 204 at p. 218 that, prima facie, a transfer of personalty to two or more persons creates joint ownership.