One of the most common estate planning techniques currently making the rounds is the adding of a child as a joint owner on a bank account, investment account or real property. It is espoused as a simple way to bypass the need to apply for probate and avoid probate tax, and ensure that funds are available immediately in the event of death.
Although it sounds simple, adding a child as a joint owner of a bank account or real property can often cause more problems than it solves, and can result in much more money spent on legal fees and taxes sorting out the problem after death than may have been saved at the outset.
Legal History of Joint Ownership
Prior to 2007, the addition of a spouse or child to a bank account, investment account or real property was presumed to be a gift of an ownership interest in that property to the spouse or child. Referred to in law as the “presumption of advancement” a person challenging this presumption of a gift would need to prove to a court that this was not the person’s intention, and that the intention was that the assets were intended to form part of the deceased’s estate.
In 2007, the Supreme Court of Canada addressed the joint ownership of property in two decisions – Pecore v. Pecore, 2007 SCC 17 and Madsen Estate v. Saylor, 2007 SCC 18.
The Supreme Court of Canada determined that while the presumption of advancement apples to the addition of a spouse or a minor child to a bank account or property, the addition of an adult child to such bank account or property would be presumed not to be a gift – referred to as the “presumption of resulting trust” – and would be presumed to be for purposes of convenience or access rather than a gift of an ownership interest.
As such, the bank account or property would not belong to the adult child after the death of the parent, and would instead form part of the parent’s estate, unless there was evidence to prove the intention of the joint ownership was to gift the bank account or property to such adult child.
Application for Appointment of Estate Trustee
The Application for Appointment of Estate Trustee, sometimes referred to as “Probate”, involves the Estate Trustee making an Application to the Superior Court of Justice, which Application includes the original Will, the completed requisite court forms and affidavits and a listing of the types and values of property of the deceased. Estate Administration Tax is payable at the rate of 1.5% on the value of the assets of the estate exceeding $50,000.00.
Third party institutions which are holding estate assets, such as financial institutions or the Land Registry Office, will usually require the Estate Trustee to obtain Probate before they will release the deceased’s assets to the Estate Trustee.
Probate is essentially the Court signing off that it is satisfied that the Will is the last Will of the deceased, that the assets listed are all of the assets of the deceased, and that the Estate Trustee named in the Will has the authority to deal with the estate assets.
In order to avoid the expense and time required to probate a Will, it is often suggested that assets be held jointly with a spouse or an adult child.
Joint Ownership of Assets Between Spouses – Presumption of Advancement
When assets are held jointly, whether it is bank accounts or real property, they are often held in the capacity of Joint Tenants, which entails with it a principle of law called the Right of Survivorship.
The Right of Survivorship means that the surviving Joint Tenant inherits the deceased Joint Tenant’s interest in that asset. As the Right of Survivorship is agreed to as part of the Joint Tenancy ownership, the right of the surviving Joint Tenant to the deceased Joint Tenant’s interest occurs automatically upon death – there is no need to apply for Probate and the asset does not form part of the Estate.
It is common for spouses to hold assets as Joint Tenants, which allows the assets to be transferred to the survivor automatically, without the need to apply for Probate.
Without the need to apply for Probate, the assets are not “frozen” by the financial institution or Land Registry Office, and no Estate Administration Tax is payable.
Joint Ownership with an Adult Child – Presumption of Resulting Trust
When an adult child is added as a joint owner to a bank account or real property, contrary to the above situation with spouses as joint tenants, the default position of the law in Ontario is that the child does not have the Right of Survivorship, and was added to title by the parent as a matter of convenience, rather than as a true Joint Owner.
Evidence of the parent’s intention that the child should inherit the bank account or real property through the Right of Survivorship would need to be present. The required evidence of this intention is case specific and will vary depending on the circumstances.
This means that even if a child is the surviving joint tenant on a bank account or property, despite what the bank may say, by law the asset would still be considered an asset of the estate, the value of the asset would still be subject to Estate Administration Tax and the asset would be dealt with pursuant to the deceased’s Will.
This could lead to issues after the death of the parent, particularly in situations where that child is also named in the Will as the Estate Trustee of the deceased parent’s estate – their duty as Estate could be in conflict with their personal interest as the sole owner of that bank account, investment account or property.
In addition, the addition of a child to a bank account, investment account or real property can create issues while the parent is still alive.
Having a child as a Joint Owner on a bank account means that the child has access to the entirety of the funds in that account – if the child decides to withdraw some or all of the funds, they would have full authority from the bank to do so, despite the funds legally belonging to the parent.
Joint ownership of the bank account, investment account or property also means that the asset could be subject to claims by the child’s creditors or could be determined to be net family property and subject to the claims of an ex-spouse.
Further, adding a child joint onto an asset means that the consent of the child is required for any transaction with that asset (e.g. the selling of real property, changing of investments).
Overall, the addition of a child onto a bank account, investment account or real property should only be completed after consultation with a Wills and Estates lawyer, as part of the that person’s entire Estate Planning process.
In many cases, the intention of the parent may be better accomplished by other means, such as the appointment of the child as Power of Attorney or a restructuring of the parent’s assets.
Making piecemeal changes to an Estate Plan without consultation with a lawyer can lead to unintended consequences, which may very well prove much more expensive both from a financial standpoint, and a family relationship standpoint.
Disclaimer: Information made available in this article is provided for general information purposes only and is provided without representation for its accuracy or completeness. It is not legal advice and should not be relied upon. You should not take any action or fail to take any action based on the information set out in this article or on this website. Consult a lawyer at Sullivan Mahoney LLP and seek professional legal advice tailored to your unique situation.