Whose Property Is It? Certainty in Estate Planning

October 16, 2021

By Brian Babcock

Except in very limited circumstances, in your will, you may only give away property that you own. This may seem obvious, but we see recurring cases where people fight over whether an asset was truly owned by the deceased person.

The most typical disagreement is whether or not the deceased person already gave away the property during their lifetime. This may happen even if the deceased person retains legal title to the property at the time of death. The doctrine of “self-declaration of trust” allows a gift to be created while the person who originally owned the property appears to still own it, but has magically transformed into a trustee, so that they are no longer the beneficial, or true owner of the property.

Where there is written proof of the creation of that trust, there is less of a problem.

In cases where the trustee is not the original owner, a transfer of title is usually required from the settlor (the person creating the trust) to the trustee. But in cases of a self-declaration, no such transfer is required, as the trustee is the same person wearing a different hat.

Where there is no written declaration of trust, where the declaration is unclear as to either intention to create a trust, or there is a dispute whether the trust includes specific property, the courts look at all the surrounding facts to determine the intent of the deceased person.

Where there is a written declaration of trust, for tax purposes it will important to distinguish between a trust that took effect immediately, versus one that reserved a life interest for the legal owner.

Joint bank accounts may also create uncertainty, as most people are not aware of the presumption in equity as to true ownership, which differs as between accounts held by spouses, or by a parent and child, versus joint accounts with others. This situation is further confused by the fact that the contract with the bank – that form you sign to create the account –  may differ from the rules in equity, and may differ from your intent. Once again, the court will look at surrounding circumstances. Though the banking contract has some weight, it is a contract between customer and banker, not conclusive proof of whether a trust was intended.

A bank account need not be joint for a trust to be found to exist. In an English case from 1976 which is applied in Canada, the deceased held funds in an account in his own name. He was not married to his “common law spouse”. Funds from both persons were deposited in the account, and there was only one withdrawal, which was apparently used to buy food and Christmas presents by both of them.

The court accepted that ordinary people do not use “stilted lawyer’s language” when they intend to create a trust. In that case, evidence that the deceased often said “this money is as much yours as mine” was enough to find that a trust existed, so the funds went to the spouse rather than the heirs at law.

Despite this precedent, because each case turns on its own facts, we continue to see families torn apart, and estates depleted, by disputes over whether property was held in trust.

Dealing with trust property is an important part of estate planning, just like drafting a valid will. If you have property held jointly, or subject to a trust, you should discuss this with a lawyer, who can help you document your intentions. Clarity may also be provided for by professional will drafting.  Your lawyer’s notes may also be important evidence of your intentions. This is yet another example of why having a will is important, and why a professionally drafted will is a sound investment.