March 25, 2015

A recent decision in the Ontario Superior Court of Justice held that a deed of transfer of land can still be valid even if the deed wasn’t registered until after the transferor died.

In the case, Sproul Estate v. Sproul, the testatrix, Ann Sproul, had purchased a house in 1989 with her husband, Leonard, together with Pennie who was the then girlfriend of their son James. The Sprouls took title on 7/13 of the property as joint tenants and Pennie took the remaining 6/13 as tenant in common. James then lived in the house with Pennie. James and Pennie married in 1993, separated in 1995 and divorced in 1996. As part of the separation, James paid Pennie for her interest in the house and Pennie’s 6/13 interest was transferred to James.

After Leonard died, Ann was diagnosed with early to mid-stage Alzheimer’s. However, in 2002, Ann executed a survivorship application to have title to the home placed in her name alone. She also executed a deed of transfer to transfer her interest to James for the reason of “natural love and affection.”

Both the survivorship application and transfer deed were prepared in a law office. However, there was an issue with title, and before registering the transfer, the lawyer followed up a number of times with James in hopes of clearing up the issue. James did nothing to resolve the issue and the transfer deed was never registered.

When Ann died in 2011, her will left everything to her two children, James and Marilyn, equally. Marilyn claimed that the estate owned the 7/13 interest in the house. She brought an application pursuant to the Partition Act, RSO 1990, c P.4, to sell the house and divide the proceeds equally between her and James. She argued that the transfer deed was invalid, either because Ann was incapable when it was signed, or because it was never registered. James argued that the house was his outright, saying that he had paid the costs of the house since he first lived there. He also claimed that his parents lent him the money to purchase the house and that he paid them back.

Justice Pattillo rejected James’ claim that he repaid his parents the money used to purchase the house. Instead, the court held that the 7/13 interest in the house was owned by the Sprouls until Leonard’s death, at which time it passed by way of survivorship to Ann. However, Justice Pattillo also rejected Marilyn’s claim that Ann was incapable, mostly on the basis of evidence from Ann’s neurologist and long-time lawyer, who witnessed her signing the documents.

Justice Pattillo held that Ann was capable of making the gift of her 7/13 interest in the house to James. Additionally, the fact that the deed was not registered did not change the effect of the transfer. The transfer deed became effective when it was delivered to the lawyer for registration. This was in contrast to an earlier Court of Appeal decision that held that where the testator had drafted deeds of transfer to be delivered after death, they were testamentary dispositions and had to conform with the statutory requirements for wills.

The court did not address the issue of whether an unregistered transfer deed would be subject to a resulting trust (previously discussed here). Presumably, the estate would be able to claim that because the transfer of the property was gratuitous, the property is subject to a resulting trust. The receiving party (in this case, James) would be required to show clear evidence that a gift was intended, otherwise the estate would maintain a beneficial interest. It remains to be seen whether this case ends up introducing a new method of avoiding paying probate taxes in Ontario (although considering the inherent risks, I would imagine not).