Testators should document their intentions when they set up joint bank accounts if they want to avoid a future estate battle over the funds.
There are good estate planning reasons for owning property jointly with a beneficiary – it can be an effective way to transfer funds while avoiding the 1.5 per-cent probate tax otherwise payable on assets in a person’s estate.
However, the ownership of funds in a joint bank account is not as straightforward as many people think, and problems arise when there is any doubt over what the testator meant to happen to that jointly-held property. In fact, disputes along these lines are among the most common causes of estate litigation in Ontario.
Most of the cases that end up before the courts concern parents who added one of their children to a bank account – often for estate planning purposes, but sometimes simply for convenience.
It’s easy to see why other children who were not named on the bank account might object to the funds flowing straight to their sibling after the parent’s death. And they may be able to have the assets included in the estate with the help of a landmark Supreme Court of Canada ruling from 2007, which 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.
However, a recent Newfoundland and Labrador decision shows that joint accounts held with a surviving common-law spouse could be just as exposed to legal challenge from other beneficiaries.
The adult children of the deceased in the case argued that the proceeds from their father’s bank and investment accounts should fall into his estate, rather than passing on to his common-law spouse, who was also named as an account holder.
In the end, the provincial Court of Appeal sided with the common-law spouse, upholding the trial judge’s finding that evidence from banking officials supported the deceased’s intention to provide for a right of survivorship. As a result, she was entitled to keep the funds in all four accounts, which were worth a total of $1.4 million.
The amount of money at stake here was significant, but, as I’ve written before, it doesn’t take a huge sum of money to spark a bitter family feud, and tensions are even easier to escalate when complex blended family dynamics are at play.
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.
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