|Sursa Dumneavoastra de Estates si Real Estate Law in Canada|
Does owning assets jointly with another person constitute immediate and effective estate planning?
The quick answer to this question is… it depends! Sometimes this can be the case, and a will is not even necessary, and other times, I would highly recommend against it. Here are some examples when complications can arise:
- If you have a child who lives outside the country
- If you have a child with a disability
- If you have a minor child for whom you want to appoint a guardian
- If you have a blended family with a child/children from a prior marriage
- If you own assets jointly with a child versus if you own them jointly with a spouse
- Personal belongings, including a car, may not be covered by joint asset ownership planning
- Access to digital content (laptop, email, social media accounts, pictures) is not covered may not be covered by joint asset ownership planning
Below, I will discuss two notable complications:
Bank Accounts held jointly
My clients are surprised to find out that where a parent and an adult child own a joint bank account, the contents of the account do not automatically pass to the adult child upon the death of the parent.
This is because the courts view this transfer of wealth as a “gratuitous transfer” of money where the parent made all the financial contributions, and therefore, it should flow back to the parent. This is what the law calls a “resulting trust”, where an asset legally owned by a person who contributed nothing to its acquisition should go back to the person who purchased it for valid consideration. In order to invalidate this presumption, the adult child must provide some evidence that a gift was intended.
However, practically speaking, what kind of evidence is acceptable? Here is a list of examples based on court decisions:
- Evidence of financial dependence of adult child on the parent
- Evidence that the deceased understood that the jointly-held account was going to pass to the adult child on the parent’s death (usually from their lawyer)
- Written instructions from the testator
- Signed deed of gift
- Behavior of the adult child is to be taken into account (i.e. willingness to provide information when one of the estate beneficiaries or the court asks for it)
When interpreting all this information, the determining factor the courts look for is the intention of the testator.
Real Estate held in joint tenancy
The usual structure of a property held in joint tenancy is that the surviving owner has a right of survivorship upon the death of the other owner. A lot of people think that if they choose to have their home owned in joint tenancy with another person, the property by-basses their will and therefore, the estate administration tax. However, this is not always so, because it depends on who is the person with whom they co-own the property.
If the other owner is their spouse, the spouse will receive the property by right of survivorship, with the result that the property by-passes the will, and the estate does not pay estate administration tax. Additionally, no property tax or tax on capital gain will be payable regardless of whether the property is a principal residence or not, due to the spousal rollover exception.
If the other owner is an adult child, for example, the court might not approve the transfer outside the will due to the “resulting trust” formed (explained earlier in this article).
If you have any questions about this topic, I would love to help!
PLEASE NOTE THAT THE CONTENT OF THIS BLOG IS MERELY FOR INFORMATION PURPOSES AND DOES NOT CONSTITUTE LEGAL ADVICE.
Raluca M. Soica, BBA, CPA, CMA, JD
Barrister & Solicitor
Raluca M. Soica 10/4/2020