Joint Bank Accounts and Fiduciary Obligations
Disputes surrounding the ownership of a joint bank account between a parent and his or her adult child have unfortunately become a regular phenomenon in estate litigation. Court decisions in these disputes often center on whether the child on title with the parent can rebut the presumption of resulting trust.
However not many of these decisions actually analyze the equitable relationship between the two joint bank account title holders.
In a recent decision of Justice Woodley the Court examined the nature of the fiduciary obligation between an ageing mother-in-law and her daughter-in-law. In the Estate of Annie Mackay v Dawn MacKay (Evans)1 the daughter-in-law had been placed as a joint bank account holder to assist her mother-in-law with her finances and to pay her mother-in-law’s expenses. The daughter-in-law was put on title and was not the Continuing power attorney for property. Her husband at the time was the attorney for property. The Court analyzed whether:
- The daughter-in-law joint-account holder owed a fiduciary duty to her mother-in-law in the management and operation of the joint bank account;
- Whether fiduciary duty was breached when the daughter-in-law paid herself from the joint bank account;
- Whether the daughter-in-law was liable to repay the funds to the estate of her mother-in-law that she had taken as compensation.
Justice Woodley provided a helpful analysis of the fiduciary relationship between the joint bank account holders. Her Honour utilized the SCC analysis from Frame v Smith2 to find a fiduciary obligation existed. The Court stated that the daughter-in-law had discretion in the exercise of the account as she could unilaterally write cheques and transfer funds from the account which affected her mother-in-law’s interests. In addition her mother-in-law’s mental and physical health began to fail rendering the mother-in-law vulnerable to her daughter-in-law. The court additionally found that the daughter-in-law was a trustee de son tort and should be treated as if she was appointed as a trustee.
In analyzing whether the daughter-in-law breached her fiduciary obligation by paying herself compensation out of the joint bank account in return for the financial assistance she was providing her mother-in-law, the Court stated:
At common law and in equity the general rule is that fiduciaries are not entitled to benefit from their appointment. However, this rule is not an absolute prohibition on activities that present a conflict of interest and duty. In the present case [the mother-in-law] had the right to request that [the dauther-in-law] provide care and companionship to her in exchange for compensation. The mother-in-law was entitled to organize her finances and personal services as she saw fit. The application of the rule of equity arises as follows: once the court has found a conflict between personal interest and duty the question arises as to whether there was consent to the activity.3
The Court then found that there was consent by both the mother-in-law and by her attorney for the compensation that the daughter-in-law had been taking. The Court specifically found that there was a “family agreement” for personal services. What is notable here is that the court found that family agreements have legal consequences and that in evaluating their efficacy the Court must determine whether any promise or agreement existed and whether there is sufficient intention for enforceability.
The Court found here that both the attorney for property and the mother-in-law had consented to this family agreement whereby the daughter-in-law would receive compensation.
The Court then found that the compensation taken by the daughter was reasonable.
Analysis:
The Court’s finding that the daughter-in-law was a trustee de son tort and owed a fiduciary obligation to her mother-in-law adds another dimension in joint bank account disputes. Although the Court ultimately came down in favour of the daughter-in-law it is clear one should be cautious when adding their name on title with an ageing adult parent of a bank account.
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1. 2015 ONSC 7429.
2. 1987 CanLII 74 (SCC), [1987]2 S.C.R. 99 at 136
3. Ibid at para. 40.
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Written by: WEL Partners
Posted on: December 9, 2015
Categories: Commentary
Disputes surrounding the ownership of a joint bank account between a parent and his or her adult child have unfortunately become a regular phenomenon in estate litigation. Court decisions in these disputes often center on whether the child on title with the parent can rebut the presumption of resulting trust.
However not many of these decisions actually analyze the equitable relationship between the two joint bank account title holders.
In a recent decision of Justice Woodley the Court examined the nature of the fiduciary obligation between an ageing mother-in-law and her daughter-in-law. In the Estate of Annie Mackay v Dawn MacKay (Evans)1 the daughter-in-law had been placed as a joint bank account holder to assist her mother-in-law with her finances and to pay her mother-in-law’s expenses. The daughter-in-law was put on title and was not the Continuing power attorney for property. Her husband at the time was the attorney for property. The Court analyzed whether:
Justice Woodley provided a helpful analysis of the fiduciary relationship between the joint bank account holders. Her Honour utilized the SCC analysis from Frame v Smith2 to find a fiduciary obligation existed. The Court stated that the daughter-in-law had discretion in the exercise of the account as she could unilaterally write cheques and transfer funds from the account which affected her mother-in-law’s interests. In addition her mother-in-law’s mental and physical health began to fail rendering the mother-in-law vulnerable to her daughter-in-law. The court additionally found that the daughter-in-law was a trustee de son tort and should be treated as if she was appointed as a trustee.
In analyzing whether the daughter-in-law breached her fiduciary obligation by paying herself compensation out of the joint bank account in return for the financial assistance she was providing her mother-in-law, the Court stated:
At common law and in equity the general rule is that fiduciaries are not entitled to benefit from their appointment. However, this rule is not an absolute prohibition on activities that present a conflict of interest and duty. In the present case [the mother-in-law] had the right to request that [the dauther-in-law] provide care and companionship to her in exchange for compensation. The mother-in-law was entitled to organize her finances and personal services as she saw fit. The application of the rule of equity arises as follows: once the court has found a conflict between personal interest and duty the question arises as to whether there was consent to the activity.3
The Court then found that there was consent by both the mother-in-law and by her attorney for the compensation that the daughter-in-law had been taking. The Court specifically found that there was a “family agreement” for personal services. What is notable here is that the court found that family agreements have legal consequences and that in evaluating their efficacy the Court must determine whether any promise or agreement existed and whether there is sufficient intention for enforceability.
The Court found here that both the attorney for property and the mother-in-law had consented to this family agreement whereby the daughter-in-law would receive compensation.
The Court then found that the compensation taken by the daughter was reasonable.
Analysis:
The Court’s finding that the daughter-in-law was a trustee de son tort and owed a fiduciary obligation to her mother-in-law adds another dimension in joint bank account disputes. Although the Court ultimately came down in favour of the daughter-in-law it is clear one should be cautious when adding their name on title with an ageing adult parent of a bank account.
—
1. 2015 ONSC 7429.
2. 1987 CanLII 74 (SCC), [1987]2 S.C.R. 99 at 136
3. Ibid at para. 40.
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