Parents could be sowing the seeds of a future estate battle when they set up a joint bank account with a child.
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.
But for many parents, the addition of an extra account holder is done for little more than convenience. In fact, they may never have considered what would happen to the money after their death.
And that’s when the trouble starts: confusion over what the testator meant to happen to jointly-held property is one of the most common causes of estate litigation in Ontario.
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.
But in practice, there’s not much that can be done to stop someone from going on a spending spree with jointly-held money, so parents need to be sure they can trust that person. After death, assets in a joint bank account go automatically to the surviving account holder, whether or not the deceased person wanted the funds to form part of their estate.
If the will provides an equal split among the deceased’s children, then there’s a good chance that the siblings who weren’t named on joint accounts will raise a stink and seek to have those assets included in the estate.
As I’ve written before, it doesn’t take a huge sum of money to spark a bitter family feud, and nothing elevates tensions like a brother or sister who seems like they’re getting more than their fair share.
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.
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Jacob Manishevitz is a mortgage agent with iBridge Capital. His brokerage donates to several charities that range from providing drinkable water to people in need in developing countries; and supporting important organizations by way of activity-based fundraising. If you are looking for worthwhile causes and want to jump on board, please reach out to Jacob.