Thinking of adding someone other than your spouse’s name onto your house, vehicle, bank account, or other major asset? Plan for the principle of resulting trust first!
It is not uncommon for a parent, particularly if their spouse has died, to consider adding their adult child’s name on title to their house or to their bank accounts. If you intend to add someone else’s name to an asset, such as a house, bank account, or vehicle, and that someone else is not your spouse, you should strongly consider consulting with a legal professional before doing so. It can be very important to properly document your intentions to help achieve your goals and avoid unexpected consequences.
It is not uncommon for a parent, particularly if their spouse has died, to consider adding their adult child’s name on title to their house or to their bank accounts in an arrangement known as joint tenancy. We discussed some of the risk and benefits of such an arrangement in our November 2017 post. At the end of that post we mentioned that if a parent decides to own an asset in joint tenancy with their child, simply adding the child’s name to the asset may not be enough to ensure that the child will keep owning it when the parent dies.
Presumption of Resulting Trust
This is because of a legal principle known as the Presumption of Resulting Trust.
Simply stated, the Presumption of Resulting Trust is as follows:
If person A gives B an interest in property but B does not pay for it (and B is not A’s spouse), then the law presumes, in the absence of sufficient evidence to the contrary, that B is under an obligation to return that interest in the property to A. B holds whatever interest B has in that property as trustee for A.
This is also a rebuttable presumption – sufficient evidence that this was not truly A’s intention can overwhelm it.
If the Presumption of Resulting Trust applies during A’s life, the obligation generally extends to A’s estate as well.
A is an elderly woman and B is a younger man, possibly an adult child or close friend. A puts B’s name on her house as joint tenant. It is A’s intention that B receive a beneficial interest in the house immediately (that he become a true joint tenant) and receive the house entirely by the right of survivorship when she dies. She has no other children who might be left out as a result of this and she is not concerned about the loss of control or exposure to B’s creditors.
A also puts B’s name on her main chequing account so that B can help her with shopping, paying bills, and other day to day banking. Her arthritis and mobility issues make it difficult to do for herself. It is A’s intention that the bank account be part of her estate to be distributed according to her will.
A then dies.
After A’s death, A’s transfer of both the house and bank account into joint tenancy with B are challenged by beneficiaries of A’s will. They want the house and bank account included in A’s estate, from which they will receive a share. They argue that the Presumption of Resulting Trust applies.
If the court finds that the Presumption of Resulting Trust applies to both transfers, B would be obliged to return the bank account and the house to A’s estate. Fortunately for B, the Presumption of Resulting Trust is a rebuttable presumption.
If B successfully demonstrates in court that A’s intention was to create a true joint tenancy by gifting him a beneficial interest in the property as a joint tenant and for him to keep the house outright upon her death by survivorship, then the Presumption of Resulting Trust is rebutted. The house would not form part of A’s estate and B would be able to keep the house. However, if B cannot demonstrate in court that A had intended for B to keep the house as a gift, B would likely be obliged to return the house to A’s estate and it would be distributed according to her will. This is not an outcome either A or B would want.
In the case of the bank account, in the absence of sufficient evidence that A intended for B to receive the contents upon her death, B would be presumed to hold the contents in trust for A’s estate. This is true even if the bank has released the funds to his control after her death. He would still be obliged to return the funds to A’s estate.
The Presumption of Resulting Trust is not just a concern when joint tenancy is involved. Another common scenario can be illustrated by the following example:
A has three children. A’s will names her three children as equal beneficiaries of her estate. While alive, A gives one child, B, $50,000 to help start a business or buy an apartment. A then dies.
In the absence of any evidence to the contrary, B is presumed to hold the money as trustee for the estate of A. B would be obliged to return the $50,000 to the estate so that it may be added to the pool of assets that is to be split equally between B and his two siblings. This kind of scenario is a relatively common cause of estate litigation as the siblings who did not receive money during their parent’s lifetime use the courts to try to force the sibling who did to return that money to the estate.
As you can no doubt imagine, the Presumption of Resulting Trust can lead to unexpected and undesired consequences if people are not attentive to it when administering their affairs and planning their estates. Good legal advice and properly documenting one’s intentions are both vital precautions. A lawyer can provide valuable assistance in helping document such intentions effectively.
Questions? Get in Touch
Please let us know if you have questions on this subject – we are happy to help.