Supreme Court Rules on Joint Accounts PART3

b) Wording of bank documents: The clearer the language used in the bank document to suggest the transferor’s intent regarding the beneficial interest in the account, the more weight the evidence will carry. c) Control and use of the funds in the account: Exclusive control and use of the account by the transferor may be of assistance in determining intention but is not determinative. d) Granting of Power of Attorney: The granting of a power of attorney may be of assistance in determining the intention of the parent, especially if the evidence suggests that the transferor appreciated the distinction between granting that power and gifting the right of survivorship. e) Tax treatment of joint accounts: Whether or not a transferor continues to pay taxes on the income earned in the joint account during his/her lifetime may assist in establishing intention, but such evidence is not determinative. It is up to the Court to determine the weight to be given each element of the evidence. It is of interest to note that the Supreme Court did raise the question of the potential capital gains tax payable when transferring assets to a joint account, but it declined to comment on the issue further. The Supreme Court stated that “these are matters for determination between the Canada Revenue Agency (CRA) and taxpayers in specific cases.” Conclusion: Where a parent gratuitously sets up a joint account with an adult child and there is a dispute as to the ownership of the survivorship interest after the death of the parent, the presumption of resulting trust applies and the onus is on the child to establish the parent intended to give the child the survivorship interest. The Court will consider evidence establishing the intention of the parent at the time of the transfer. The language of bank documents, evidence of use of the account and payment of taxes on the account may not be determinative of the issue. To avoid litigation among family members a parent wishing to set up a joint account with an adult child should consult a lawyer and follow the advice given about how to clearly document the intention with respect to survivorship rights.

Supreme Court Rules on Joint Accounts PART2

Pecore v. Pecore (2007 SCC 17) A father placed approximately $1 million of his assets in joint accounts with his daughter. She was one of several children. In his Will the father left the residue of his estate to his daughter and her husband equally. The father died and his daughter and son-in-law later divorced. The ex-husband challenged the daughter’s right to the survivorship interest in the balance in the joint account. Madsen Estate v. Saylor (2007 SCC 18) Again, a father placed approximately $160,000 of his assets in a joint account with one of his daughters. In his Will the daughter and her two siblings were to share 50% of his estate. The action was commenced by the siblings against the daughter in her capacity as the executor as she did not include the joint accounts in the distribution of the estate. There were a number of similarities in both cases including:  The father had control and use of the assets in the joint accounts during his lifetime  The father continued to pay all the taxes on the income earned in the joint accounts  The father had also given power of attorney to the same child whose name is on the joint accounts. However, after considering all the evidence, the Supreme Court of Canada reached different conclusions as to the intention of the parent in each case. In Pecore, the Supreme Court found that the father had indeed intended to gift survivorship rights to his daughter whereas in Saylor the Supreme Court found that there was no intention to gift the survivorship rights. The majority of the Supreme Court applied the following principles in both cases in reaching its conclusion: 1. Where a joint account is set up with an adult child and funded gratuitously by a parent, the presumption of resulting trust applies and the onus is on the child claiming the survivorship interest in the account to rebut the presumption by showing the parent intended to gift that interest to the child. If the evidence is not sufficient to rebut the presumption on a balance of probabilities, the joint account will be considered as part of the parent’s estate to be distributed according to the parent’s Will. 2. The Court will consider the evidence establishing the intention of the parent at the time of the transfer including: a) Evidence subsequent to the transfer relevant to the intention of the transferor at the time of the transfer.

Supreme Court Rules on Joint Accounts PART1

In two much anticipated decisions, the Supreme Court of Canada ruled on the legal presumptions to be applied when determining the intention of the transferor as to the survivorship interest in a joint account on the death of the transferor. Both cases involved an aging parent gratuitously depositing funds into a joint account opened with one of several adult children. The principles set out by the Supreme Court when dealing with this type of situation can be summarized as follows: 1. The presumption of resulting trust applies in cases of a gratuitous transfer of property from a parent to an adult child. This shifts the onus to that child of establishing on a balance of probabilities that the parent intended to gift the right of survivorship to whatever assets are left in the account to the survivor. Where there is insufficient evidence to rebut the presumption, the assets will be treated as part of the parent’s estate to be distributed according to the parent’s Will. 2. Some of the evidence which may be considered by the court in determining the intention of the parent includes:  evidence of the relationship between the parent and the child holding the account;  wording in bank documents that suggests the parent’s intention as to the beneficial interest in the account;  control and use of the funds in the account;  granting of a power of attorney; and  tax treatment of joint accounts. Background Joint accounts with right of survivorship (hereinafter referred to simply as joint accounts) are used by many Canadians for a variety of purposes, including estate planning and financial management. An elderly parent may often use a joint account to transfer assets on death outside of the estate to minimize potential probate tax payable and to simplify the administration of the estate. The parent may also use a joint account to allow a child to help him or her with the day-to-day management of the account
The varying intentions of the parent in setting up the joint account can lead to confusion among family members after the parent has passed away. Did the parent intend to gift the beneficial interest in the joint account to the child whose name is on the joint accounts? Or was it the parent’s intention for the child to hold the assets in the joint accounts in trust for the benefit of the parent’s estate to be distributed according to parent’s Will? The difficulty here is that the parent is no longer around to state his or her intentions. It is often left up to the courts to determine the parent’s intention after the fact. Two such cases were heard by the Supreme Court of Canada and the Court’s decisions were released on May 3, 2007. A brief background of each case is provided below:

Joint ownership of bank accounts and investment accounts

When it comes to bank accounts and investment accounts, some couples prefer joint ownership while others are strict about maintaining separate accounts.

Joint ownership with your spouse

There are pros and cons to joint ownership of bank accounts and investment accounts with your spouse.

There are some benefits to having your spouse as a joint owner like:

• No income tax payable upon your death
• Not part of your estate – no probate process or probate fees
• No delay in your spouse’s access to these funds.

On the other hand, the disadvantages of joint ownership are:

• Funds available to your spouse’s creditors
• Cash may not be available to pay your taxes and other debts after death thereby forcing your executor to sell other assets
• Funds not available for distribution to other beneficiaries
• Needs careful record-keeping for income tax purposes during your lifetime.

For estate planning purposes, most spouses should have joint accounts unless the disadvantages pose real problems in their particular circumstances.

Joint ownership with a child or other person

There are often reasons why a lone surviving parent might want to have a joint account with an adult child:

• So the child can pay the parent’s bills
• So the child can manage the money (e.g. reinvesting expired GICs).
• To leave the remaining money to the child after the parent’s death.
• To avoid probate process and probate tax on the account.

Despite these reasons, putting a bank account or investment account into joint ownership with anyone other than your spouse is typically NOT recommended.  There are a number of reasons for this:

• Funds are immediately available to this other person’s creditors (including in a divorce)
• Funds may not be available to pay your debts after death
• Funds not available to your other beneficiaries
• Careful record-keeping is required for income tax purposes during your lifetime
• Many family fights have occurred over joint accounts.

Generally speaking, the disadvantages of joint ownership with children are greater than the benefits.  Be very cautious about putting children as joint owners of your bank and investment accounts.

If you need the regular assistance of your child for bill payment and money management, there is a better way to give your child power over your accounts.  Simply go to the bank with your child and give your child signing authority over your account (rather than joint ownership).  Another alternative is to set up electronic banking and have your child help you do your regular banking from the comfort of your own home.

If you were considering making an account into a joint account with a child so that the child would receive the funds after your death, then you can achieve the same result with a clause in your Will that gives the account to the child.  Even though this may subject the account to probate tax and the probate process, it is cheaper than having your family litigate whether your child is entitled to the account.

Cautionary Tale:  Fighting all the way to the Supreme Court of Canada

Surviving family members fighting over joint bank accounts left by a deceased parent has been such a problem that the Supreme Court of Canada had to address the issue three times in 2007.

In these cases, three different Ontario families had the same problem.  An elderly parent had a bank account that was made into a joint account with an adult child.  After the parent died, another family member challenged the adult child’s right to keep everything in the joint account.  In two of the cases, the challenging family members were siblings of the adult child, and in one case, the challenge came from the ex-husband of the adult child.

Even though it might be obvious to many people that the purpose of a joint account is to allow the surviving account holder to receive full ownership of the account, the Supreme Court of Canada disagrees.  As it stands now, the law in Canada is that an adult child does not automatically gain full rights to a joint account after a parent dies.

Instead, the surviving child must prove that it was the parent’s intention to give the adult child full rights to the joint account after the parent’s death.  Precisely what evidence is sufficient under what particular circumstances was not exhaustively decided by the Supreme Court of Canada.

With this continuing uncertainty, why risk causing a family fight over this issue?  Avoid joint accounts with your children and it will never happen.

Joint Accounts: Appropriate Use of Joint Accounts

As part of the estate planning process, in some provinces, some financial or legal advisors may encourage their clients to establish joint accounts with their heirs as an estate planning tool to avoid probate fees or the process itself.

Under certain provincial laws, there may be some benefits to this strategy although they are often outweighed by the risks described below. If you request in person (not through a Power of Attorney – see Opening a Bank Account with a Power of Attorney), that a joint account be opened and your bank has no reason to think that you are not capable of making this decision, they will usually open the joint account.

Be aware of the potential for abuse /conflict with a joint account

If you open or make existing accounts joint with a family member or caregiver to make it easier for that person to assist with paying bills, etc., or for estate planning purposes to avoid probate fees, you make that person a co-owner of the funds in the account. This arrangement may be harmless if the other person is trustworthy and follows your wishes. But, if not, an abuser can take over the funds in a joint account and use them for their own benefit, not yours.

You should also consider that, if the joint account holder is sued or has a previous legal judgment or garnishment order against them or is engaged in a family law proceeding, your funds may be considered part of their assets and could be at risk. Conflict can arise if you or your Attorney do not agree with how that person is operating the joint account. On your death, further conflict can arise in your estate administration if the joint owner claims the funds in the joint account as their own, contrary to the distribution set out in your Will.

A safer alternative to a joint account is a Power of Attorney, which allows the Attorney to help with financial transactions without transferring ownership of the funds to the Attorney.

Or, if the purpose of the account is for the other joint account holder to assist you with paying household bills, a joint account for that purpose could be established, but you could set up a bank transfer from another account where only the funds necessary for household bills would be transferred and accessible to the joint account holder. Keep in mind, however, that if you give a POA to the same person who is joint on the account, the Attorney may be able to move funds from your other account to the joint account, potentially creating the risks mentioned above.

This text only provides general information and does not constitute a legal opinion. Since the POA rules vary between provinces, the CBA strongly encourages you to seek advice from a legal expert before making any decision in these matters.

Joint accounts: What does it really mean?

Joint accounts

A joint account offers the same features and benefits as a personal chequing or savings account in one name only, but allows two or more people to make withdrawals, deposits, payments and other transactions from the same account.

Managing a joint account

It is a good idea to ask the financial institution what happens if one of the joint account holders dies and to make sure that the survivor will be able to access the funds without delay. If not, you may want to consider depositing your income into an individual account before transferring it to a joint account. 

Check with your financial institution to learn about their policies on joint accounts and how your joint account is managed.

Your responsibilities as a joint account holder

As a joint account holder, you share not only access to the account but you are also responsible for any transactions made by the other account holder. For example, if you have overdraft protection attached to this account, all account holders may be held responsible for repaying the debt.

 

Before you open a joint account, talk about it with the co-owner and make sure you both agree on how the account will be used.
 

Receiving information on joint accounts

Under a voluntary commitment, Canada’s banks have agreed to make information available to clients opening new personal bank accounts or converting an account that is held in one name to an account that is held jointly by more than one person. For more information, visit FCAC’s page on Joint Bank Accounts: Your rights and responsibilities​. 

Official Definition of ''Joint Account''

Bank account in the name of two or more individuals (account owners) who jointly (equally) share its concomitant rights and liabilities. Joint holders of an account are regarded in law as together making up the 'owner.' Any action against them (pertaining to that account) is made against jointly and not individually (severally). Two types of joint accounts are: (1) Joint-tenancy account (owned usually by a married couple) in which either owner may individually exercise full rights to make deposits or withdrawals on his or her signatures. In case of either owner's death, the survivor automatically takes the sole control of account assets without probate. (2) Tenants-in-common account (usually owned by two or more business partners or directors) in which signatures of all owners are required to exercise certain rights such as making withdrawals. In case of one or more owners' death the other owner(s) may take control of account assets only in accordance with the terms of agreement entered between them before such eventuality. A company account operated by two or more signatories as a means of accounting control or security is not a joint account in the legal sense. See also jointly and severally.