July 27, 2020

The Law of Resulting Trusts

What happens to jointly owned assets following the death of one of the joint owners? In the normal course, full ownership passes to the surviving owner.[1] However, this result may seem unfair where only one of the owners paid for the property or, in the case of bank accounts, only one person deposited funds into the account. In those cases, the law has evolved to impose a “resulting trust” on the jointly owned asset, such that it falls into the estate of the owner who paid for the property or contributed the funds to the bank account.

A “resulting trust” arises where property is held in one party’s name, but that party is under an obligation to return it to the original owner because (i) she did not pay for the property or contribute any funds towards it; or (ii) she is a fiduciary (for example, she is acting in the role of attorney for property).[2]

A common situation where a resulting trust might arise is when a parent adds an adult child as joint owner of a bank account, but only the parent contributes funds to the account. There are many reasons why the parent may add her child as joint owner of the account – to avoid estate taxes on death, so that the child can help manage the parent’s finances while she is alive, or because the parent intends to gift the account to the child on her death. The key factor in determining whether the child holds the bank account on a resulting trust for the parent’s estate or not is what the parent intended when she added the child as joint account holder.

The burden rests on the child to put forward enough evidence that, on a balance of probabilities, show that the parent intended to gift the joint bank account to the child when she died. However, proving what the parent intended can often be difficult – there is often a lack of clear and compelling evidence of intention. In order to avoid a stalemate, the court has developed a “presumption of resulting trust” – where there is no evidence of intention, or where the evidence is evenly balanced, then the court will presume that the parent intended the child to hold the bank account in trust for the parent and her estate.

Joint bank accounts are a common source of litigation following the death of a parent. Keep this in mind if you find yourself the joint owner of a bank account where only one of you contributes the funds in the account – document your intentions as best as possible.

[1]  Ownership passes to the survivor if the asset was held in “joint tenancy.” A different result arises if the asset was held as “tenants in common” – what happens then will be left for another blog.

[2] The law regarding resulting trusts is set out in the Supreme Court of Canada case Pecore v Pecore, 2007 SCC 17