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WHAT TO DO WITH THE COTTAGE?

WHAT HAPPENS WITH MORTGAGE FRAUD?

WHEN IS COMMON LAW NOT COMMON LAW

MORE INTERFAMILY SQUABBLING ALBERTA STYLE

WHAT TO DO WITH THE COTTAGE?

I have written a great deal about the biggest problem for cottage owners and it is not bears, increasing taxes, ongoing repairs or even mosquitoes. It is the ever increasing issue: what shall we do with it? This might seem to be very simple. Alas, it is often fraught with all sorts of considerations ranging from tax troubles or in some instances family friction.

When I am consulted by a client who has the very real problem of deciding what to do with the cottage, I try to get him, her or both of them to try to see the big picture first of all. There are of course several options open to an older or even sometimes not so older couple wanting to deal with this particular problem. I think it helps to present these options before a decision is made and then, with the best information available, to make an informed decision. In some instances, it might be the best course is to do nothing. That would depend on the fact situation as presented to me. Generally speaking I advise clients to look at the problem in two big ways.

First of all, there are possible tax issues arising from the sale or gift by the registered owner or even death of him or her. That aspect of the consultation has to be explored in some depth. Happily, there are at least some ways to get the answers to determine if indeed there will be tax liability attaching to a gift, transfer or death. It may not be perfect, but it will be close enough to help the person wanting the information to at least feel that he or she now knows what the tax implications are. What I hope to give my client is a basis for coming to a conclusion, at least for the tax aspect of the decision, as to whether or not to transfer now or later or if at all. I am of the view that without this information, the client is, sad to say, shooting in the dark. I will say that there are many facets to consider and this newsletter is far too short a medium to transmit this information keeping in mind that everyone’s fact situation is different and that what applies to one might not work for another. I do recommend that a meeting be set up with the parents initially and possibly after with the intended transferees. I am quite used to having to meet with people who have this very situation facing them.

The second aspect of the dilemma facing owners of cottage property when they ask themselves what to do with the cottage is to determine if it is even feasible for the children to share a cottage. I need not recite the problems associated with that part of the ownership issue but I will just mention a few that jump out at me. Typically, I hear the refrain, “but they don’t get along now, how will they manage without me.” Or “what about my son’s spouse, she cannot tolerate her sister-in-law or her kids.” Or “my son in Vancouver only uses the place for a couple weeks of the year and my son in Winnipeg is angry that he has to open and close the cottage and bears the responsibilities of it without a murmur from his absent brother.“ Those are just a few examples and likely you have your own story. Again, I cannot promise miracles but I can at least explore the alternative solutions to these basic problems confronting cottage owners. I have been down the path enough times to at least know of a few possible answers.

If you can get past the tax issues and then the sharing difficulties, the next thing is to figure out who should be the actual transferees and what form of ownership should be used to register the property. This can include the trust possibility or in fact a corporation as another alternative way to go. It is something that has to be explored in some depth.

In short, the prospect of making a change in the ownership is one that can be daunting and it is a step that should be addressed carefully prior to jumping in. I can help you as I have for a number of years already for many others.

WHAT HAPPENS WITH MORTGAGE FRAUD?

You might have wondered from time to time what happens when somebody perpetrates a fraud and in doing so, fools the mortgage lender. After, what happens to the mortgage? Who suffers the loss? Well, the recent case of O’Brien v. Royal Bank of Canada is on the point.

A married couple named O’Brien had bought a condominium in 1996. The wife Lilianne split from her husband Donald in 2004. Donald left Canada and signed a Power of Attorney at that time in favour of the daughter Phillipa. And at that same time, the couple transferred a 1/3 interest to her in the condominium. There was then registered against the title a mortgage with First National Corp. in the amount of $150,000.00. Then things got interesting. Phillipa, in 2005, transferred the property into her name alone as she told lie number 1 to the lawyer when she said both parents had left Canada. She had forged a Power of Attorney for her mother so that she could deal with the entire property, 1/3 as an owner and the other 2/3rds as Power of Attorney for her respective parents. Then to compound this fraud, she entered into a new mortgage with the Royal Bank for over $211,000.00. From these proceeds, $150,000.00 was used to pay off the First National mortgage. Lilianne, the mother, actually sued her own daughter and had the title restored so she got back her 1/3 interest. Also, Lilianne was able to get a Judgment against her daughter for $50,000.00 and a further $8,000.00 in costs. But, as you might realize, there was this mortgage now for $211,000.00 registered against Lilianne’s 1/3 interest so she sought a declaration that this mortgage, obtained by fraud, be removed from the title. Not surprisingly, the Royal countered with an application to the court that the mortgage be declared valid as against even Lilianne’s 1/3 interest by way of what is known as an equitable mortgage.

Now, this posed an interesting question for the court. It ultimately allowed the two applications and in fact the RBC was allowed to sell the condo to a third party if Lilianne and the bank could not agree to terms as to the sale of the condo to Lilianne. In effect, what the court said was just this. The mortgage with the RBC had to be removed but the RBC had in fact an equitable mortgage on the title. The court concluded that there had in fact been at one time an intention that there be a mortgage on the property with First National. Once that mortgage was discharged, the three owners benefitted from that discharge and in fact would be enriched by that very act if they were not forced to repay that mortgage. Thus, an equitable subrogation was created whereby even though the RBC mortgage was extinguished, the mortgage it replaced was not one that ought to have been extinguished. So, in order to rectify this mess, the solution was to sell the property to repay this equitable mortgage and then use the balance to repay the creditors of Phillipa. Quite a tale. And what is not disclosed is what the state of the relationship is between mother and daughter as of right now. It cannot be a strong one.

WHEN IS COMMON LAW NOT COMMON LAW

A recent case in BC dealing with estates had to come to grips with the issue of what is in fact a common law relationship. This was the case of KIRKWOOD v. MACMILLAN. In this case, the deceased had died without a will in October, 2005. Previously he had never been married and had no children and his parents were long dead. But, he had a sister. She was on the face of it, his only relative. But, the Defendant said that she and the deceased had a common- law relationship and if so, she was entitled to his estate. She provided evidence of a marriage like relationship for the 2 ½ years preceding the death. The facts supported the position she advanced in that there was corroboration of a romantic relationship for several years. Yet, it was also true that the couple maintained separate residences and also kept their finances separate. The issue before the court was to decide whether or not this lady was in fact a common- law spouse of the deceased. What was compelling evidence for the court was the fact that the pair had never actually cohabited and that was fatal to her claim. That there were present other items of evidence that would support the argument that they were common law spouses was not enough. The fact was that the actions of the parties spoke volumes about their relationship and the fact that they did maintain separate homes and had no mixed bank accounts was more persuasive than the fact that they were together often. The court said that a committed relationship by itself is not enough to warrant a finding that the couple or any couple is in fact common law. Hence the claim advanced by the lady was thrown out and the sister was successful in getting the whole estate of the deceased.

MORE INTERFAMILY SQUABBLING ALBERTA STYLE

Yet another little gem came across my desk when I spotted the recent case of ARCHER V. ST.JOHN, out of Alberta. The case has in it many of the issues that I see in my every day law practice. It involved a farm property but it could be any other piece of property. The married couple Gerald & Margaret Archer lived on & owned a dairy farm. The couple had 6 adult children and their estate planning had been such that the farm was to continue in operation with the farm and the herd being passed on to the two sons and the daughters being the recipients of life insurance policies. It seemed ok but you never know what can trigger a plan to go awry.

 One daughter a Ms. St. John actually lived with her family on a quarter section of the property known as SE6. In 2001, the Mrs. Archer died leaving her husband surviving her (along with the 6 kids of course). Ms. St. John became upset over the fact that the home she lived in all of these past number of years, was going to be given on her father’s death to her brothers. She had been given the right to remain there for 20 years after the death of the father but, after that she had to go. This property known as SE6 was part of the whole and it was to be conveyed to the sons.

 So, Ms. St. John has her father for supper and then gave him a transfer of land and had him transfer it in the presence of a friend who was a commissioner of oaths and who could swear affidavits. He in effect added Ms. St. John as a joint owner of this piece SE6 and thus on his death she would inherit that section. The document was then registered. In 2004, two years after the gift to Ms. St. John, Mr. Archer died. Ms. St. John invited her brother over for a little session and she told him (in what must have been a heated discussion) that Dad had given her this section and that he (Devon, her brother) had to get his stuff off her property. Devon went to a lawyer and this case was the result.      

 The issues before the court were three fold. Did the deceased actually have the capacity to sign the transfer? Did he sign it with the intention of giving it to his daughter? If the transfer was indeed a gift, was it given as a result of undue influence? The case as reported was a long decision (too long for this newsletter) but, in the end the court did conclude that he did have capacity. The court also found that there really had no intention to make this gift and the onus was on Ms. St. John to show that this was his intention. That really ended the case but the court went further and said even if it was wrong in its holding that there was no intention to gift, the so called gift was done under undue influence by Ms. St. John and it gave many examples of what they deemed to be undue influence.

What the court was clear to state was to reaffirm the notion that the onus of establishing whether a person has the legal capacity to make a gift, is on the person alleging the incapacity. In this case, what was quite clear was that the evidence was at best not certain. There was some evidence adduced supporting the proposition that the testator was in fact demented and other evidence that he was not. The court was much more definite in asserting that this transfer was done not with a clear intent to be a gift but more in the way of what is known as a resulting trust.

In sum, because the court had in fact decided that the transfer was not meant to be a gift, it could have ended the case there but, it went further and said that even if the judgment was wrong on that point, the transfer was invalid as it was done under what was deemed to be undue influence. And the court gave several examples of how this undue influence in fact was shown. I will be glad to tell you about them but there was too much in the judgment for this limited space.