By Patrick McMurchy
What can be done when a deceased’s assets have been stripped away so that there’s little or nothing left in the estate upon their death.
Recovering these “lost” assets can be achieved a number of ways.
The first way is to claim the assets back under the doctrine of the resulting trust. This arises where legal ownership of the assets have been transferred but the deceased did not intend to transfer beneficial ownership. By operation of law the assets are said to be held in a trust for the benefit of the deceased’s estate.
Resulting trust claims have become more and more common since the landmark Supreme Court of Canada decision in Pecore v. Pecore in 2007.
In Pecore, an aging father transferred bank accounts, mutual funds and income trusts into the joint names of himself and his daughter, who was one of his three adult children. He had been told by a financial planner that he could avoid probate fees and make after-death dispositions less expensive and cumbersome. Because he had been told that the transfers could trigger a capital gain he wrote letters to the financial institutions holding the accounts stating that he was the 100% owner of the assets and that they were not being gifted to his daughter.
When the father died, the daughter became the legal owner of the assets by the right of survivorship, a long established legal principle which says when one joint owner dies the surviving joint owner takes all. But in this case, the court held that the assets were being held in a resulting trust by the daughter and the assets formed part of the estate because the father did not intend the assets to go solely to his one daughter.
A second way to recover “lost” assets is where the assets have been lost through the exercise of undue influence, which is defined as a situation where one person has been able to dominate the will of another through manipulation, coercion, or more subtly. Undue influence can be found where someone is abusing a relationship of trust or confidence, and the elderly can be particularly vulnerable to such influences.
A third way, slightly different from undue influence, is where a transfer is unconscionable. A transfer may be set aside as being unconscionable where there is inequality in the position of the parties arising out of the ignorance, need or distress of the weaker.
A fourth way is where a Power of Attorney has been abused to transfer assets. In this circumstance, an accounting of the attorney’s actions with a tracing of where the lost assets went can be required.
Finally, in a wills variation action, assets that can’t be recovered directly can still be accounted for in a division between estate beneficiaries. Gifts and transfers of assets made by the deceased to a beneficiary during the deceased’s lifetime can be accounted for when a court is considering how the remaining estate assets should be divided fairly. The same consideration applies to assets transferred outside of the estate upon death, such where there’s a designated beneficiary of an insurance policy or investment. Judges will try to do what’s fair while looking at the big picture.
This short article is intended to give the reader a general understanding of some of the basic principles respecting the designation of beneficiaries and how that relates to recovering property back into the estate. It is not intended as legal advice. In estate litigation, outcomes very much depend on the specific facts of each case.