Michael Ford
Estates & Wills & Trusts

Joint tenancy and bankrupt estates – who gets the house?

By Stuart Clark

Most people are fairly familiar with the distinction between a property that is held on a joint-tenancy and one held in tenancy-in-common. Under most circumstances, when one joint-tenant dies, title to the property vests in the surviving joint-tenant by right of survivorship. The deceased individual no longer has any proprietary right in the property, and the asset passes to the surviving joint-tenant outside of the deceased individual’s estate.

But what happens if, after death, it is discovered that the deceased individual died with insufficient assets to satisfy all of their debts? Can a property that vested in the surviving joint-tenant be clawed back into the estate to satisfy the deceased individual’s debts?

In Re Cameron Estate, the Ontario Court was forced to consider just such a scenario when, after death, it was discovered the deceased individual had insufficient assets to satisfy all of his debts. The bank to whom the deceased owed money attempted to argue that the matrimonial home that vested in the surviving joint-tenant on death could be clawed back into the estate to satisfy the debt.

In arguing that the property could be clawed back into the estate to satisfy the debt, the bank put forward two main arguments: (1) that the transfer constituted a “transfer under value” within the meaning of s.96 of the Bankruptcy and Insolvency Act (the “BIA”); and (2) that the deceased’s estate held an interest in the property by way of constructive trust.

The court rejected both arguments. Interestingly, in rejecting the bank’s argument that the transfer constituted a transfer undervalue within the BIA, the court offers the following analysis of what occurs upon the death of an individual who owns property as a joint-tenant:

“When one joint tenant dies, its interest in the property is extinguished, and the rights of the remaining joint tenant or tenants are correspondingly enlarged. The enlarged interest immediately vests in the remaining join tenant or tenants.”

Simply put, when a joint-tenant dies, their interest is not transferred to the surviving joint-tenant by right of survivorship, but rather the deceased joint-tenant’s interest is extinguished and title to the property vests solely in the surviving joint-tenant. As there is no “transfer” to the surviving joint-tenant, there can be no transfer undervalue.

As Cameron Estate makes clear, a property that passes to a joint-tenant by right of survivorship cannot be clawed back into the estate to satisfy a debt under normal circumstances.

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