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Declaration of Intention to Retain Beneficial Interest and Exemption (sole) (57 downloads)

Ken Proudman Executive
 view Arbitrator profile
   Edmonton, Alberta

I developed this form after reading all of the decisions following Jackson and Harrower which discussed rebutting the presumption of advancement when an exemption is placed into joint names.

I'll be presenting it to the CBA real property section tomorrow, in hopes that real estate lawyers will use it as an opportunity to discuss exemptions with clients, so that they can make informed decisions. See more about the webinar tomorrow here:

You'll see that there's a disclaimer in the form, because it is a murky area that's circumstance-dependent, and if they really want to protect land they should get a pre-nup. This version has only one of them sign, which isn't ideal but might be better than nothing. It's preferable to have them sign the version where they each sign:

What do you think?

Download Declaration of Exemption Sole - DOCX file attached - Jun 16, 2020

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1 3 years ago - edited 3 years ago

Doug Moe K.C. Executive
 view Arbitrator profile
  Moe Hannah LLP
   Calgary, Alberta

Very cool idea. Interesting and raises lots of issues 1. Can a party do that unilaterally or even secretly and at the same time tell their spouse they are putting the house in both names? What if they are liars and create it years after the fact? Does it make a difference if it is sworn? Could a diary entry work? What about an email to a friend? 2. What is the real estate lawyer's obligation to send both sides out for independent advice? 3. What if the other side says i don't want to be on a mortgage if i don't "own" the beneficial interest? What about the obligation to talk about maybe not sharing some of the increase in value or not sharing it equally? (Mueller QB decision?)4. if they both sign is it then a prenup and needs to comply with sections 37 and 38? 5. Is the real estate lawyer negligent if they don't recognize this and send them out for ILA? 6. Definitely the real estate lawyers should have some sort of information sheet that goes out to clients well in advance of the meeting. Too often real estate clients are presented with the stuff to sign and it is just sign here, here and here. No one really knows what they just did other than buy a house and agree on a mortgage.

0 3 years ago

Ken Proudman Executive
 view Arbitrator profile
   Edmonton, Alberta

I agree, the topic definitely raises a lot of issues. I spent a lot of time thinking about it and reading case law, and I still felt the need to put a bold disclaimer in the form, which I don't think I've had to do for a specific precedent before (other than the "this is not legal/accounting advice" disclaimer). I'm sure that it'll get misused, but I'm hoping that much more often it'll help people protect their exemptions against inadvertent gifting, or at least let them make an informed decision when they choose to gift half of them. I'm tired of seeing people lose half of their life savings without realizing what they're doing.

The fundamental problem in much of the case law was that there was rarely any corroborating evidence to back-up what either side claimed the intention was, so the court usually fell back on the statutory presumptions. That said, my feeling was that intention at the time of the transfer was paramount. Where that intention was unclear, whether there were benefits to the transferee, even long after the transfer, seemed to be used to interpret the original intention. The analysis was similar to that used to interpret transfers between parents and independent adult children, as in Pecore v Pecore, 2007 SCC 17 at para 59.

Here's my take on each of the issues you've raised, and how I've tried to address them:

1. In many of the decisions, courts seemed to suspect that the purported intention claimed by both parties was only raised after-the-fact. In most of these cases I doubt there was any explicit discussion about the characterization of the transfer at the time. I figure that by having the declarations commissioned, at least there's an independent person involved who will need to state when they commissioned the document on a certain date, so hopefully that helps to show that the matter was put to their mind at the relevant time, especially if it's the same commissioner who signs with the Affidavit of Value and Affidavit of Execution. I thought that was more reliable than just having a witness, and simpler than also adding an Affidavit of Execution. If we're lucky, this form will be sent with the others to Land Titles, so that we can pull the registration to show that they were registered concurrently (which also avoids having to contact a real estate lawyer years later). At least it forces the transferor to put their mind to how they want to characterize the transfer, because unless they intend otherwise, they're gifting half.

I suspect that whether they can do so secretly would be addressed similarly to how courts treat people who claim that they separated earlier. You can intend to separate before announcing that intention, and the other spouse's consent or intention isn't relevant to whether that intention formed, but if your actions are inconsistent with that intention, it can undermine your credibility and then a court doesn't have to accept that evidence. In most cases, the declaration would likely be sufficient since the other party probably wouldn't have any contradictory documentary evidence, but if the transferor's actions were contrary to their stated intention, then the court might not accept the intention stated in the declaration.

2. Even without this form, real estate lawyers should have been asking clients whether they're gifting all of the equity, or only transferring title for estate planning purposes and/or to share the increase in value. If it's only a transfer without a refinancing, then they only need the transferor to sign and could act solely for them. Otherwise, as long as spouses agree to the answer, then it shouldn't be an issue, I'd even say that the real estate lawyer is being even more diligent than they've been in the past by seeking clearer instructions and not letting clients gift exemptions without being informed that they're doing so. It's not that different than if they were to ask clients whether they want to be joint tenants or tenants in common, here we're just asking how much of the interest is being transferred, not helping them resolve a claim to which one of them has a cause of action agaist the other. That said, if there's a dispute such as a separation, "secret" instructions, or the spouses' instructions don't match, then issues will arise under our Code of Conduct. At that point, we're looking at the factors listed at Rule 3.4-2[3]. Thanks for bringing up these points, because that reminds me to add that section of the Code to my slides!

3. I don't think the mortgage company's claim would be affected, so in most cases they'd still foreclose rather than sue only one of the owners. Even if they didn't, our Court of Appeal has said it's only the equity that's exempt (Campa v Campa, 2016 ABCA 187 at para 18), so I'd think they'd still have a family property claim against the portion that was encumbered by the debt. If the mortgage company only sued the transferee instead of foreclosing, and the transferee paid off that debt, then the newly freed-up equity in the land wouldn't be exempt anymore, so they'd still receive some benefit. The amount of their claim is debatable, but that's no different than the historical scenario where they jointly own the beneficial interest, if they were forced to pay off debt, it would free up equity, but they might still only receive a portion of that equity. Regardless of whether they have a beneficial interest or not, in both scenarios there might be a good argument for an unequal division applying the section 8 factors. At least as a legal title holder they'd probably have the ability to prevent the newly-freed equity from becoming re-encumbered.

4/5. If section 37 applies it excludes the application of Part 1 of the Act. Whether there's a presumption of advancement or resulting trust, and whether the presumption is rebutted is set out in section 36, which is in Part 3. We're not excluding Part 1 here, we're just rebutting the presumption that joint ownership of the beneficial interest is intended. There were two reported decisions where a full exemption was maintained because of written contracts evidencing that the transferor expected their equity to be returned to them (WDG v DLG, 2009 ABQB 340 at paras 47-49; DGM v KMM, 2002 ABQB 225 at para 2). In one of those decisions, DGM, the contract was a promissory note and collateral mortgage, which I assume didn't comply with sections 37 and 38. The Court of Appeal has even permitted promissory notes to proceed in separate actions apart from family property division (Miller v Miller, 2004 ABCA 257 at paras 21-23). However, I think if the Declaration were to go any further than addressing intention or return of the exemption, for example deciding on the split of the increase in value, then it would probably violate sections 37/38. Hopefully real estate lawyers think before they edit the form!

6. I agree! At least this will force real estate lawyers and clients to discuss the issue, rather than giving up part of their exemption each time they want to contribute towards a house, and then finding out about it later.

1 3 years ago

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