Bank forms fail to eliminate joint account confusion
By Lisa Laredo, principal at Laredo Law.
Joint bank accounts between parents and their children are often a recipe for estate litigation.
When it comes to estate planning, there are good reasons for owning property jointly with a beneficiary, since it can be an effective way to transfer funds without triggering the 1.5 per-cent probate tax otherwise payable on assets in a person’s estate.
The problem comes when testators fail to explain their thinking, leaving beneficiaries to guess (or more likely, argue) about the parent’s intentions. Invariably, the named child will claim that mom or dad meant for them to have the cash, while the siblings who were left out argue that the move was made simply for convenience or some other reason.
Ontario’s estate courts are filled with siblings playing out this exact script, with their combined legal costs quickly consuming any probate tax savings.
A landmark Supreme Court of Canada decision from 2007 held that adult child co-owners are presumed to hold property in trust for the parent’s estate when evidence is lacking as to intentions.
Anyone claiming otherwise must rebut that presumption by proving that the parent intended for the child to receive a beneficial interest in the account. That’s a tough test to meet, as the daughter of a deceased Ontario woman recently discovered.
According to the decision, the mother added her daughter to a series of bank accounts in 2014, about four years before her death. The daughter argued in court that the $128,000 in funds should flow straight to her, claiming that bank forms checked off and signed by her mother showed that she knew the joint accounts would have “rights of survivorship.”
But the judge was not convinced, writing that he needed more direct evidence of the mother’s intentions to rule in favour of the daughter and noting that the mother’s will was silent on the issue of the joint accounts. Instead, he found that the money belonged to the estate, where the daughter would share it with other beneficiaries.
“A party seeking to rebut the presumption of resulting trust cannot rely on checking off a box, or other language in banking documents explaining survivorship. There must be more evidence than this, to establish that the individual creating the joint account truly turned their mind to gifting a beneficial interest in the account,” the judge concluded.
Bank accounts are not the only assets that parties hold jointly, and relations between beneficiaries can get even more strained when the co-owned property is real estate, considering that houses are typically the most valuable assets in any estate, not to mention the emotional attachment that comes with a family home or cottage.
Again, there may be tax advantages to setting up a joint tenancy with a child, which allows the property to flow automatically to the co-owner by right of survivorship.
However, homeowners may have other reasons for adding a person to title. For example, a bare trust may be a more appropriate mechanism for someone who wishes to add a person to title while retaining control of a property during their lifetime, and ensuring that it falls into their estate after death.
Whatever your intentions for joint property, it’s important to get them down in writing ahead of time so that everyone is on the same page about why the joint owner has been added, what they can do with the property, and what will happen to it when you die.
Disclaimer: The content on this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this website are advised to seek specific legal advice by contacting members of Laredo Law (or their own legal counsel) regarding any specific legal issues.
