Opening a joint account with your child is not a step to be taken lightly.
There are undeniably good estate planning reasons for owning property jointly with a beneficiary, since it’s a simple and effective way to transfer funds without triggering the 1.5 per-cent probate tax otherwise payable on assets in a person’s estate.
But it’s a double-edged sword for testators who fail to explain their thinking, leaving other beneficiaries room to argue about the parent’s intentions. Almost without fail, the child named on the joint account will claim that mom or dad meant for them to have the cash, while the siblings who were left out claim that it was done simply for convenience or some other reason.
Ontario’s estate courts are filled with siblings filling these standard roles, collectively amassing legal costs that will easily consume any probate tax savings the parent had planned.
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 not completely out of reach, as the daughter of a deceased Ottawa woman recently demonstrated.
According to the ruling, the mother died in October 2023, leaving a will that split her assets between her son – who got 45% – and her daughter, who received the remaining 55%.
However, in the last years of the mother’s life, the daughter had also received $1.7 million in withdrawals from bank accounts held jointly with her mother.
Predictably, the son took the matter to court, asking for the withdrawn funds to be returned to the estate.
However, the judge ultimately sided with the daughter, finding that the circumstantial and direct evidence – including banks forms, gift notes and beneficiary designations, as well as accounts of the mother’s strained relationship with her son – demonstrated the mother’s “clear and unmistakable intention” to gift the money to her daughter during her lifetime.
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.
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. 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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