Joint ownership needs careful thought to ensure success

Joint ownership is most common between spouses, but the strategy has become increasingly common between parents and adult children.

The purpose is the same – to simplify administration of the parents’ estates and to minimize probate fees.

One common probate-avoidance technique is to register title of the property (bank accounts, investment accounts or real property) in joint tenancy.

Each surviving owner has the right to this property when one owner dies. The property is simply transferred directly to the surviving joint owners, thus by-passing the estate.

A major problem with these joint accounts is proving the intent of the grantor - in this case, the parent - as the following two cases from the Supreme Court of Canada illustrate.

Cases from the Supreme Court of Canada - Joint Ownership

In May 2007, the Supreme Court of Canada (SCC) released simultaneous judgments in two Ontario cases: Pecore v. Pecore (2007 SCC 17) and Madsen Estate v. Saylor (2007 SCC 18).

At issue, in both cases, was the meaning of 'joint tenancy with rights of survivorship' (or JTWROS) of an investment.

These cases sought to establish the true intentions of the original owners when the joint accounts were established.

In Pecore, Edwin Hughes, father of Paula Pecore, put nearly $1 million of mutual funds into joint ownership with her.

Upon Mr. Hughes' death, the assets in the joint account were transferred into Paula's name. Subsequently, Paula and her husband Michael Pecore separated and in the course of the divorce, Michael tried to go after the assets that had come from the joint account.

Since he was a beneficiary under his ex-father in-law's will, he argued that the transfer of the joint account into Paula's name was not a true gift since it was done "for probate purposes only".

Both lower courts disagreed and found that Paula legitimately inherited the account through JTWROS.

In Madsen, Michael Madsen chose only one of his three children, Patricia Brooks, to name as a joint owner of his investment accounts.

After Mr. Madsen’s death, Patricia's brother and sister sued, claiming that their late father only named Patricia on the account "for convenience purposes" and thus no true gift was made.

They argued that the monies in the joint accounts should be distributed in accordance with the will, with both siblings receiving a portion of the funds. Both lower courts agreed.

The SCC saw no reason to reverse either of these lower courts' decisions.

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Courts consider "presumption of resulting trust" in their deliberations.

This means that, when joint owners are not dependents (i.e. not spouses or minor children) a court will presume that the survivng owner holds the assets in trust for the deceased owner's estate unless the surviving owner can show otherwise.

The courts found, due to the above, that the onus falls on the surviving joint account holder to prove that the transferor intended to make a gift of any remaining balance in the account.

Certain factors such as wording in any financial document used to open the account are of interest to the courts.

Other factors include control and use of the funds while the transferor was alive, whether a power of attorney was granted, who paid the tax on the account and any other evidence the court may find necessary to establish intent.

These days, joint accounts between parents and adult children are generally deemed “accounts of convenience” – meaning they are set up to provide care for the parent.

After the death of the parent, the remaining assets in an account of convenience revert to the estate unless the parent’s will specifies a different intent.

Joint accounts held between spouses and between parents and minor children aren’t generally deemed “accounts of convenience” – the surviving owner receives whatever remains at the time of death.

For all other cases, you can include a clause in your will when the joint account is set up indicating intent to have the residue revert to the surviving owner. This will avoid probate fees and ensure faster transfer of monies.

You can also include this instruction in the joint ownership agreement itself, but be careful to ensure that the agreement and your will do not contradict each other.

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So, it’s no longer a given that joint accounts between parents and adult children will simply revert to the adult child on the death of the parent. You now have a bit of work to do for it to happen.

The last thing you want is for your good intentions to result in a financial drain on your estate’s assets and bitterness between your heirs.

Before drawing up a joint ownership account with your adult child, consider what you want this account to do and make sure that your intentions are well documented.

Finally, speak with your lawyer and consult with your financial or tax advisor to learn about the tax ramifications that this type of document can create.



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