Undue Influence and Independent Legal Advice: a recent case study

In two recent blog posts, we discussed the issues of using joint tenancies for estate planning. In Amanda Winters’ post she noted that joint tenancies are difficult to revoke if you change your mind. Emily Clough’s post discussed a case where a claim for resulting trust failed.

A transfer of property to joint tenancy may be declared void if the transfer was made due to undue influence. At common law, a presumption of undue influence is established where:

1. The person receiving the gift had the opportunity to dominate or influence the person giving the gift; and
2. The transaction disadvantaged the giver.

The onus then moves to the defendant to rebut the presumption of undue influence. The defendant must demonstrate that the transaction was entered into as a result of full free and informed thought.

In the recent case of Cowper-Smith v. Morgan, 2015 BCSC 1170 the plaintiff successfully set aside a joint tenancy on the basis of undue influence. Interestingly, the individual who was unduly influenced had received independent legal advice regarding the transfer of the property into joint names.

The facts of the case are summarized as:

• E  and A had three children: a daughter G, and two sons, M and N.
• A passed away in 1992. He was survived by E and the children, as well as his brother D.
• In 2001, D contacted a lawyer on E’s behalf. D stated that he suggested to E that she change her will to give everything to G, and have G give some to her brothers if “reasonable”.
• G and E then attended the Lawyer’s office to execute a transfer of E’s house into joint tenancy with G. The Lawyer later met with E alone. E told the Lawyer that she wanted the house in joint tenancy with G and the balance of the estate divided equally between the children.
• A few weeks later, the Lawyer received a phone call from G, advising that E wanted all her investments held in joint tenancy with G. The Lawyer again met with E alone. At this meeting, E told the Lawyer that she wanted “all to go to G to do with as she feels proper”. However, when the Lawyer asked her how she would feel if G kept everything, E responded that she was “confident G is kind enough that she would do the right thing”.
• The Lawyer prepared a declaration of trust and a property transfer form for E. The declaration of trust would transfer all of E’s assets into joint tenancy with G. The declaration stated that this was done as part of estate planning, and that the right of survivorship would apply. However, G would hold her share of the joint tenancy in trust for E during E’s life.
• The Lawyer then made arrangements for E to receive independent legal advice from another lawyer. In her cover letter the Lawyer advised that she understood it was E’s intention that her assets would become G’s on her death.
• The lawyer for E did not remember meeting with E, so he gave evidence as to his usual practice. He stated that he would have explained the documents, including the concept of joint tenancy and the right of survivorship. He said he would have told E that G would inherit the assets on her death and that they would not have to go to probate. He also stated that he would have told her that if G predeceased her, her state would not be affected. The lawyer testified that if he had been concerned that E was being unduly influenced he would not have signed the document.
• Crucially, the lawyer said he probably did not ask E why she wanted to transfer her assets solely to G. It was not the lawyer’s practice to ask the client her reasons for doing what she did or to discuss the merits of the transaction.
• E executed the declaration of trust and the property transfer with the lawyer in his office.
• E passed away on August 5, 2010. G was her executrix. Initially, G prepared to split all of E’s assets three ways with her brothers.
• However, in early 2011 G’s relationship with her brothers had soured. For the first time, G attempted to assert ownership over all of E’s assets through her right of survivorship.

The Court found that the relationship between G and E was such that the potential for domination existed, and the transaction unduly disadvantaged E. The presumption of undue influence was established.

G argued that the lawyer’s independent advice rebutted the presumption of undue influence. The Court disagreed:

• The lawyer was not aware of the extent of E’s assets and did not discuss the financial implications of placing all of her assets in trust with the right of survivorship to G;
• The lawyer did not ask E about other family members who might have benefitted if the transaction did not take place;
• The lawyer did not discuss with E the wisdom of the proposed transaction or other options whereby she could achieve her objective with less risk; and
• The lawyer did not discuss matters fully with E with a view to eliciting her own views and obtaining her own instructions.

Importantly, the Court found G “to be an unreliable and unbelievable witness… hostile, argumentative, and evasive”. Additionally, the Court found that significant portions of her testimony were “patently untrue”. There were objective witnesses who testified as to G’s influence over her mother, E’s love for all her children and the negative relationship between G and her brothers.

If you have questions about estate planning or estate litigation, please feel free to contact one of the lawyers in our Wealth Preservation + Estate Litigation Practice Group.