Are ‘zombie deeds’ a way to avoid a probate fee?

If a homeowner signs a deed to a house or other parcel of land during his or her lifetime, can it be registered after death to avoid the government’s 1.5-per-cent probate fee?

Many real estate lawyers believe that this is a legitimate method of estate planning. But now Jeffrey Lem, the province’s director of titles in the Ministry of Government and Consumer Services, has ruled that these documents are no longer eligible for registration.

If discovered, they will be rejected.

Lem calls these documents “zombie deeds,” which are land transfers registered after the death of the grantor.

They are no longer allowed in Ontario’s land registry.

Although some lawyers have been using zombie deeds for years, the practice first gained judicial approval in the Ontario Superior Court case of Winarski v. Sproul.

During her lifetime, Ann Sproul owned a 54-per-cent interest in a house in Toronto. Her son, James, owned the other 46 per cent of the house.

In November 2002, Ann signed a deed transferring her interest in the house to James. She gave it to her lawyer, but when he tried to register it, there was a minor title problem. Her lawyer called James and asked him to look into it but James did nothing and the transfer was not registered during Ann’s lifetime.

In her will, Ann’s estate was left to her children Marilyn and James in equal shares.

After Ann died, Marilyn claimed that the unregistered deed of the home in her brother’s name was invalid and their mother’s 54-percent share of the house should be divided equally between brother and sister.

James took the position that the entire property belonged to him.

The case came before Justice Laurence Pattillo in Ontario Superior Court in 2015. He ruled that the deed was valid, despite the lawyer’s failure to register it during Ann’s lifetime.

When Ann unconditionally delivered the deed to her lawyer, the judge ruled that it was a valid gift to James and was not part of her estate. James did not have to share the house with his sister.

The Winarski case suggested that a legitimate way of avoiding the payment of Ontario’s 1.5-per-cent estate tax on a property is to sign a deed and deliver it unconditionally to the recipient or a lawyer for registration after death.

In order to qualify as a Winarski transfer, the transfer and delivery of the deed has to be unconditional and irrevocable and stated to be a gift.

And though the government says zombie deeds of this type can no longer be registered in Ontario, without any other indication it’s registered after death, the land registry office will not be able to tell it’s a zombie deed. But if it is obvious the deed is registered post-death, it will be bounced by the land registry.

If any Ontario lawyer is holding any “live” zombie deeds in his or her files, and they are documents which meet all the Winarski tests — and no death certificate or other evidence is registered on title to indicate post-mortem registration — my view is that the deeds are still valid in law.

In a struggle between a court ruling and a government’s administrative policy, my view is that the court approval should always prevail.

Time will tell how this plays out. Bob Aaron is a Toronto real estate lawyer. He can be reached at bob@aaron.ca, on his website aaron.ca and Twitter @bobaaron2.