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02-Jun-2011 | kate | The Dangers of Joint Accounts
Its not unusual for parents to open joint accounts with their children, it happens for numerous reasons: aging, spendthrift children or simplifying bill payments for out of country family members. In some families, joint accounts are simply to allow another family member to do you banking and to pay the bills, with no thought of the child receiving the joint account assets upon the parent’s death. Other families open joint accounts as estates planning in order to avoid probate taxes upon death- these accounts have the full intention of pass the money on to the joint holder.
Probate fees are a tax that is paid in most provinces when a will is registered with the court house. The fee is calculated on the value of the estates assets and since the joint assets don’t form part of the estate, the bank account would not be included in the calculation of probate fees. So clearly, in province of high probate (like Ontario) joint accounts are a popular estate planning tool. The maximum charges for a probate application in Alberta are about $600 plus legal fees.
The problem with joint accounts is that too often the parent’s intentions are unclear and costly as the family feuds over the joint account. Was the joint account meant for the ease of bill payments? Was it set up for probate purposes? The problem is that until recently, the courts believed that joints accounts were set up as a gift between parent and child, and the assets in the account belonged to the surviving partner, regardless of other children.
Just recently, two court cases involving some unhappy children set new rules stating that jointly held assets between parent and child. One of the cases involved a parent, who only named one of his three children to be the joint owner of his investment accounts. Upon his death, the brother and sister sued the sister claiming that their father only jointed the account for administrative purposes. They argued that the money in the joint account should be put into the estate and distributed out according to the will, with both of the suing siblings receiving the funds.
After several years, yes years, and large legal bills, the court agreed with the spited siblings and stated that the documents were not clear and the money, (not much left by then), was distributed out according to the will.
The new rules state that joint assets will no longer automatically fall into the hands of the child when the parent dies, whether or not it was planned this way. Instead, the child has to clearly prove his or her entitlement to the asset; otherwise the asset will fall into the general estate.
The best way to avoid family battles and extensive legal bills is to have the appropriate documentation- clear written records of your wishes and to keep that document along side your will. If you want the surviving joint holder to have all the money in the account (or jointly owner property), write it down and keep that note with your will. If you don’t want the child to get the money, write that down too.
Joint accounts can be complicated, especially when there are numerous family members fighting for a piece of the account, who don’t know the whole story. Perhaps that joint account was duly funded by both you and your child for expenses related to other joint assets, upon your death, your remaining children might not believe their sibling story about how their own money is mixed in their as well. No matter what the case is and how uncomplicated you might think the circumstance may be, make sure you write down clearly what you want to happen to your joint assets so that your hard earned money isn’t given to the lawyer instead of your children.
