Superior court ruling gives life to 'zombie deeds'
By AdvocateDaily.com Staff
It’s questionable whether an attempt by the Ontario government to prevent so-called “zombie deeds” from being validated in the land registry system will have much of an impact because a 2015 Ontario Superior Court decision takes precedence, Toronto real estate lawyer Daniel Bernstein tells AdvocateDaily.com.
The province’s director of titles in the Ministry of Government and Consumer Services announced that a deed to a property cannot be registered after the owner’s death, the Toronto Star reports. By registering a deed or transfer after death, the government’s 1.5-per-cent estate administration tax (formerly known as probate fees) can be avoided.
“I question whether this administrative policy can supersede a court’s statement on the matter,” says Bernstein, a founding lawyer with Weltman, Bernstein, referring to an Ontario Superior Court ruling.
“The government is saying that if they find out about it, they’re going to bounce back the deed and not allow it to be registered,” he says. “But the question is: How would they ever find out? There’s nothing on the document itself that would indicate that the person has died.”
Bernstein says the ministry may be discouraging lawyers from registering zombie deeds because it stands to lose money from the estate administration tax.
In the 2015 case, a woman divided her estate equally between her son and daughter in her will. She owned a 54-per-cent interest in her home, while her son owned the rest. She signed a deed in 2002 transferring her share of the home to her son and gave the deed to her lawyer. The lawyer was unable to register the deed due to a small problem with the title and contacted the son. However, before the deed was registered, the woman died. Her daughter then claimed that the unregistered deed was invalid and the matter went to trial.
The court ruled against the daughter, finding that even though the deed wasn’t registered before the woman’s death, it was valid.
“The judge said once the deed was delivered [to the lawyer], it was delivered unconditionally and as a gift and was valid. It didn’t need registration to become valid,” Bernstein says. “It was given to the lawyer to register with no strings attached.”
The court took the view that the woman “thought that her estate excluded the house because, in her mind, she had already given away her interest in the house by giving the deed to the lawyer," he says. "It just happened that when she died, the deed had not yet been registered."
While the failure to register the deed before death was unintentional in this matter, Bernstein says the practice can be used as an estate planning tool to avoid paying the estate administration tax.
It’s not something he’s done before, but Bernstein says a client could instruct their lawyer to prepare a deed to sign now transferring the property, but wait to register it until after they die.
“The estate wouldn’t have to pay the administrative tax,” he says. “By waiting and following the client’s instructions in a case where the person wanted to give a gift and have it registered it after death, there’s absolutely nothing wrong with that from a professional point of view.”