Sharing property with your children has its pros and cons.
On the one hand, there are very good estate planning 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.
But on the other, joint bank accounts are among the most common causes of estate litigation in Ontario, where the eye-watering cost of pursuing legal action these days means that your heirs will quickly consume any probate tax savings.
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.
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, but it’s much easier when the parent clearly explains their thinking while they’re still alive, as a recent Ontario Superior Court decision shows.
According to the ruling, the eldest daughter of the deceased received $120,000 in a non-registered investment account held jointly with her father on his death, only for the estate – with another of his children acting as executor – to challenge the transfer, arguing that the money should be shared among the rest of the sibling beneficiaries.
Ultimately, the judge sided with the eldest daughter, relying on evidence from the time when the account was set up to conclude that she was entitled to the funds. The deceased’s investment advisor testified that the father said he wanted the money to go to his eldest daughter because he was close to her and he also checked a box providing that the funds should go the surviving account holder, rather than his estate.
Bank accounts are not the only assets that parties hold jointly, and relations between beneficiaries are often just as strained when the co-owned property is real estate, considering that houses are typically the most valuable assets in any estate. And that’s without even getting to the emotional attachment that comes with a family home or cottage.
Tax advantages are again among the top reasons for 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 – just as the father in this case did.
Although you can’t entirely eliminate the risk of an estate fight after you’re gone, you may cut the chances of one by sharing your reasoning with any other beneficiaries, 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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