Joint Bank Accounts as a Tax and Estate planning tool.

December 2, 2007 by Dan White.

Estate and Tax Planning.
REGARDING JOINT BANK ACCOUNTS
When a parent sets up a joint account with a child to avoid probate or legal fees on death, or to handle the parent’s affairs conveniently, that simple act may create future problems.
Most joint accounts in Canada are structured as “joint tenants with right of survivorship”. That means when one of the joint owners dies, the property passes directly to the remaining owner or owners. No probate of assets is required, although income tax may still be payable by the deceased on his share of the account. Presenting a death certificate to the financial institution is enough to pass the assets to the survivor(s).

REGARDINGJOINT TENANCY
Sometimes a parent will put an account or property in joint tenancy with a child so that it passes directly on the parent’s death as if it were contained in a separate will without the need for probate.
There are two types of owners of a joint account: the beneficial or actual owner and the legal owner. While these can be one and the same, it is not always the case.
A parent may set up an account with one of his children simply for convenience, to administer the parent’s affairs efficiently by being able to write cheques, make deposits, or redeem funds from an investment.
To assist in making a proper determination of the deceased’s intent, common law has developed two presumptions over the years that assist in determining a judicious distribution of assets in joint accounts.
There’s a presumption of ‘resulting trust’. It occurs when a person contributes all the money or assets into a joint account with another person who didn’t contribute to the account.
The law presumes that the transfer to a joint owner was not a gift, but for whatever reason, a bargain to hold the assets as a trust for him or for his estate when he dies. It’s up to the surviving owner therefore to prove that the deceased intended to make him a gift of the account.
The other presumption is called ‘advancement’. This usually means that the original owner intended to make a gift of the assets. Most often the presumption of advancement applies to gifts from one spouse to another or from a parent to a child.

Where there is a transfer of assets to a child by way of a joint account, the presumption of advancement is limited only to gratuitous transfers of assets to a minor child. And, if the account is held jointly with an adult child, whether or not the child is financially dependent on the parent, the courts will assume no gift was intended. That is, if there’s no evidence to the contrary.
The joint account is presumed to be a resultant trust for the deceased parent to be disposed of in his estate, especially where there are other heirs.
The solution is to have a very explicit “Letter of wishes” to clearly demonstrate the intent. This does not need to be part of a will.

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