In Ontario, the assumption of mortgage risk as a result of co-signing for a mortgage and remaining liable on it does not amount to consideration.
This means that if a person is added on title to your property to help you qualify for a mortgage and remains liable on the mortgage without having contributed to the mortgage payments, upkeep of the property, or its acquisition (in the case of a home purchase), the transfer is considered to be gratuitous, and a presumption of resulting trust applies. As a result, it is presumed that that person holds title to the property in a resulting trust in favour of the person who transferred them the property.
The presumption of resulting trust
A resulting trust arises when a person (the “Transferor”) transfers property to, or purchases property for, another person (the “Transferee”), but does not intend to make a gift of beneficial interest in that property to the Transferee. In that case, it is presumed that beneficial interest in the property should “result” back to its true owner, the Transferor.
Traditionally, resulting trusts arise in two circumstances: (1) the gratuitous transfer of property from one person to another or (2) the joint contribution by two persons to the acquisition of property, title to which is in the name of only one of them. In both cases, the transfer is gratuitous. (In the first case, it is gratuitous because there was no consideration given for the transfer. In the second case, it is gratuitous because no consideration was given towards the acquisition of the property.)
Rebutting the presumption with evidence
Where a gratuitous transfer is made, the person seeking to rebut the presumption of resulting trust has the onus of demonstrating that a gift was intended at the time of the transfer. That person will need to show sufficient evidence on a balance of probabilities that the Transferor intended to gift them a beneficial interest in the property at the time of the transfer. Without such evidence, the presumption applies, and the property will “result” back to the Transferor.
It is the intention of the Transferor at the time of the transfer that is relevant. Evidence of the Transferor’s intention arising subsequent to the transfer (that informs the Transferor’s intention at the time of the transfer) may be relevant, but such evidence must be evaluated in a manner that guards against after-the-fact evidence that is self-serving or reflects a change in intention after the transfer.
Where married spouses hold property as joint tenants, there will be a presumption of joint tenancy
Pursuant to section 14 of the Family Law Act, the presumption of resulting trust applies to married spouses, unless the spouses hold the property as joint tenants. In that case, there is a presumption in favour of joint tenancy, which the party challenging joint ownership bears the burden of rebutting.
That party can rebut the presumption of joint tenancy by providing sufficient evidence to allow the court to conclude that the other spouse’s interest as a joint tenant is the result of a gratuitous transfer without consideration, as opposed to a gift. The critical consideration remains the intention of the Transferor.
In cases involving spouses, there is usually no explicit agreement as to intention one way or the other, in which case intention must be inferred from the circumstances.
For more information, contact our Wills & Estate Planning lawyers and we would be happy to help.
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