Can you have your cake and eat it too?

Carmen Theriault reported to Vancouver Wills and Trusts Subsection members on the recent position taken by Revenue Canada on certain joint tenancy arrangements.

It has become increasingly common for two elderly parents who own an asset, such as real property or an investment account, to transfer the asset from a joint tenancy between the two parents to a joint tenancy between the two parents and their adult child. The purpose is to simplify the administration of the parents’ estates and to minimize the probate fees payable on the death of the survivor of them. As part of the transaction, the adult child signs a declaration of trust, i.e., a bare trust agreement, confirming that he or she has no beneficial ownership in the asset. The document also attempts to ensure that the parents or the survivor of them, can deal with the asset during their lives without fear of interference by the child and that no disposition of the asset will occur for tax purposes upon the registration of the child on title.

In an opinion dated July 17, 1998 Revenue Canada expressed its view on this hypothetical fact situation (document number 9813445). Revenue Canada suggested it would be a question of fact in such circumstances as to whether there had been a change in beneficial ownership. The declaration or bare trust document would not, in and of itself, be conclusive evidence that beneficial ownership had not changed. If a change in beneficial ownership had not occurred, then it was Revenue Canada’s position that no disposition for tax purposes occurred upon the inclusion of the child as an owner of the asset. In such a situation it is Revenue Canada’s position that a true joint tenancy arrangement would not exist and the objective of reducing probate fees would not be achieved, nor would the property pass to the child by operation of law on the death of the parents.

Conversely, if a change in beneficial ownership had occurred then the transfer of assets owned by the parents into a joint tenancy arrangement with the child would result in a disposition for tax purposes. In that event, upon the death of the parents the asset would pass to the surviving child and probate fees would not be payable.

In summary, it appears that Revenue Canada’s position is that you can’t have your cake and eat it too!

This article was published in the December 1998 issue of BarTalk. © 1998 The Canadian Bar Association. All rights reserved.