October 25, 2013

In estate disputes, it is common for parties to try to claw back into the estate bank accounts that were held jointly with the testator before death. The law provides a mechanism to do this – a resulting trust.

Briefly, a resulting trust works as follows: any time property is transferred to someone else for little or no consideration, the law presumes that the recipient holds the property in trust for the transferor. When the owner of and sole contributor to a bank account (A) transfers title to the bank account to himself and another person (B), the law views this as a “gratuitous transfer” to B. As a result, the presumption of resulting trust applies and the bank account passes to A’s estate on death, not to B.

However, the presumption of resulting trust can be rebutted by the evidence of the A’s intention. If there is evidence that A wanted to make a gift to B, then B’s right to access the funds was immediate upon the bank account becoming joint property. If, however, A added B as joint owner as a matter of convenience (for example, so that B can pay A’s bills for him), then the circumstances reinforce the presumption of resulting trust.

What is interesting to note is that the presumption of resulting trust can apply to transfers made out of the bank account by B while A was still alive. Unless A authorized B to withdraw the money, or at least knew of the withdrawal and did not object, then B may have to pay the money back. Moreover, A is not the only person who has a right to challenge B’s withdrawals; A’s estate or guardian of property may bring forward the challenge after the fact.

A clear example of this is found in the New Brunswick Court of Appeal decision Lawrence v Lawrence.[1] In that case, an uncle opened four joint bank accounts with his nephew, who was caring for him at the time. In addition to helping his uncle pay his bills, the nephew made several substantial withdrawals from the joint accounts for his own benefit. The nephew obtained his uncle’s approval prior to making all but one of these withdrawals.

Two and a half years later, the uncle became incapable and a guardian was appointed to look after his affairs. The guardian sought a declaration that the nephew had to pay back all the money he withdrew for his own benefit from the joint accounts.

The trial judge found that the uncle had opened the joint accounts as a matter of convenience to allow the nephew to help handle uncle’s business affairs and banking. As a result, the nephew held his interest in the accounts in trust for his uncle. However, because the uncle was aware of the nephew’s withdrawals, the court held that the uncle’s intention was to gift those moneys to his nephew as compensation for all his nephew’s help. Only where the nephew failed to obtain his uncle’s approval prior to making the withdrawal was the withdrawal improper. As a result, the nephew was ordered to repay only the one withdrawal. The trial judge’s decision was upheld on appeal.

The message is clear – not all joint bank accounts are really joint property. If only one joint owner contributes funds (A), the law presumes that the co-owner (B) holds his interest in the joint account in trust for A. B must gain approval from A of all withdrawals made the from account for B’s own benefit, and be prepared to defend those withdrawals if and when A becomes incapable or dies.

Happy litigating.

[1] (1990), 113 N.B.R. (2d) 129, 285 A.P.R. 129, 1990 CanLII 4008, 1990 CarswellNB 309 (NB CA).