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Nov 12, 2020

Zombie Deeds: The Dead Cannot Be Resurrected

Published on Mondaq.com | 10 November 2020

A legal decision rarely begins with a discussion of magic and bringing back the dead. But that is precisely how a recent Superior Court decision begins on a complex issue involving "zombie deeds": Thompson v. Elliott Estate.

A "zombie deed" is when an owner of property signs an Acknowledgement and Direction to transfer land, and the transfer is registered following the owner's death. It is sometimes used (improperly!) as an estate planning technique in an attempt to avoid estate administration tax (also known as probate). However, lawyers and individuals considering the use of a zombie deed should be aware that this tool is prohibited by Ontario law. The Thompson decision confirms that a zombie deed is an improper way to transfer property, in part because it requires the lawyer who completes the registration to make a fraudulent representation that the owner of the property is still alive.

In this case, the deceased, Alitha Elizabeth Elliott ("Ms. Elliott") held a property in joint tenancy with her husband. Ms. Elliott was hospitalized in October 2016, where she remained until her unexpected death on April 15, 2017 (capacity was not at issue). On March 27, 2017, Ms. Elliott's lawyer visited her in the hospital on her request, at which time Ms. Elliott signed an Acknowledgment and Direction to sever the joint tenancy with her husband as she was intending to divorce him and wanted to ensure that her share of the property would to go to her children (from a prior relationship). She signed the transfer documents and delivered them to her lawyer with the intention that the transfer would be registered immediately. Although Ms. Elliott signed and delivered the transfer documents prior to her passing, her lawyer inadvertently failed to register the transfer prior to her death.

Instead, after learning of Ms. Elliott's passing, the lawyer registered the transfer and made false and inaccurate law statements in the electronic registration system so that the registration would be accepted by the Land Registry Office as if Ms. Elliott were still alive. The Court held that statements required to be made in the transfer were false and inaccurate due to the death of Ms. Elliott. In addition, Justice MacLeod-Beliveau noted that had the lawyer disclosed that Ms. Elliott was dead at the time of the registration of the transfer, the transfer would have been rejected by the Land Registry Office. While not material to her decision, she found that once the lawyer realized his mistake of failing to register the transfer, he should have applied to Court to correct his error as the appropriate course of action.

While criticizing the actions of the lawyer in registering the transfer in these circumstances, Justice MacLeod-Beliveau ultimately found that the joint tenancy was severed on the day that Ms. Elliott signed the transfer, notwithstanding that the lawyer failed to register it during her lifetime.

The Thompson case has not modified the law on zombie deeds, but remains consistent with previous case law in finding that, regardless of whether a deed is ultimately registered, a deed is effective once it has been delivered and delivery requires the transferor's intention to be immediately and unconditionally bound. Ontario's Director of Titles has also stated that zombie deeds are improper and should not be used, citing Thompson.

In other instances, Ontario courts have routinely found zombie deeds to be invalid where the owner provided instructions to their lawyer to register the deed after their death.1 This is because when the instructions were provided, the owner did not intend to be immediately and unconditionally bound by the transfer document at the time the instructions were provided. At any time before the owner's death, the owner retained the ability to revoke or modify those instructions. Based on the result in Thompson and prior case law, it appears that an Acknowledgment and Direction registered after death can be effective if the grantor intended to be immediately and unconditionally bound by such deed.

It is however important to distinguish that Thompson and other cases on zombie deeds do not support their use for estate planning. In so far as effective delivery requires a grantor to intend to be immediately and unconditionally bound by the deed or Acknowledgement and Direction they have signed, a zombie deed intended to be registered in the future after the grantor's death can never be effectively delivered. As such, the pre-planned use of zombie deeds for the posthumous transfer of real property will never be possible and runs the risk of costly litigation.

During COVID-19 and beyond as boomers continue to prepare to transfer their assets, we may witness a spike in unilateral severing of joint ownership of properties held between spouses. For many families in Ontario, their home is their biggest asset and it may have increased in value significantly in the last several years causing some to seek to sever title. This case serves as a timely reminder for estate planners whose clients are unwell to ensure appropriate steps are taken to carry out a client's intentions. Where a client is seeking to sever joint ownership of property quickly (whether for health or other reasons), it is incumbent to confirm capacity and intention of the client, prepare transfer documents and attend to having such documents properly executed by the client and returned to the lawyer. Such actions are sufficient to achieve the transfer even if the transfer is not registered until after the death of the client. Care should be taken to complete the registration within a reasonable period of time. An unreasonable delay as a result of a lawyer's inaction could lead to practical and other consequences.

Footnote

Re Sammon (1979), 22 O.R. (2d) 721 (C.A.); Carson et al v. Wilson et al, [1961] O.R. 113 (C.A.); Tubbs v. Tubbs (2006), 27 E.T.R. (3d) 241 (Ont. S.C.).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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