We’re often asked by our clients: Should we add our adult children as joint owners of our property or bank accounts? Will this simplify our estate?
To answer this question, we need to examine the meaning and legal effect of joint tenancy.
Joint tenancy is a type of ownership whereon the death of one of the joint owners, their share automatically and immediately vests in the remaining joint owners by right of survivorship. The jointly held property doesn’t flow through the estate of the deceased joint owner, and therefore, it’s not subject to probate or the debts of the estate.
On the face of it, joint ownership seems like a great strategy to simplify your estate: the fewer assets to include in the estate inventory, the more straightforward your estate administration will be for your executor and the joint survivor(s) automatically become the owners of the asset as of the date of death by right of survivorship.
Seems great, right? Unfortunately, not always. Joint ownership can lead to unintended consequences.
Here’s a common scenario to illustrate those consequences:
Mary has two adult children: John and Jane. John and Jane each have a child. Mary is widowed, elderly and lives with Jane. Mary adds Jane to her bank account as a joint account holder, asking for nothing in return from Jane. Mary has a will which leaves everything to John and Jane equally, and if either John or Jane predeceases her, their share is to be transferred to their child. Mary has no written documentation demonstrating her intentions as to why she added Jane to the bank account, but she did mention verbally to Jane that she wants her to have the money as recognition for taking care of her in her old age.
Currently, the case law in Manitoba supports the following presumption:
It’s presumed at law that Mary added Jane to her bank account to act as a “trustee” only. In other words, Mary retains all beneficial ownership of the bank account contents, but Jane can access the account to help manage Mary’s financial affairs. When Mary dies, the bank account forms part of the estate assets, and the executor must distribute the bank account contents per the will on the presumption that Jane had no beneficial ownership rights in the bank account. However, this presumption is rebuttable if there is sufficient evidence to establish that Mary had a contrary intention.
Jane believes she’s entitled to the entire bank account and doesn't want to share it with John. The onus is on Jane, not the estate, to prove that Mary intended the bank account contents to be a gift to Jane, thereby passing to Jane outside of the will by right of survivorship. Jane takes it to court, but she has insufficient evidence to prove her position. Sadly, the dispute between John and Jane results in increased legal costs and estrangement between John and Jane.
Let’s change the above scenario slightly:
Mary still has the same will in effect as in scenario one. But instead, she adds both John and Jane to her bank account as joint account holders. She documents her intention in writing that her children, as joint account holders, are to take the bank account contents by right of survivorship. By the time Mary dies, she has nothing left in her estate except for the sizable contents of her bank account. Jane predeceases Mary.
What happens? John gets the bank account and there are no estate assets to distribute in accordance with Mary’s will. So, although Mary’s will states that Jane’s share goes to Jane’s child, there’s nothing to pass to her grandchild. Was this Mary’s intention? She may not have considered that, at her death, her estate would amount to nothing more than the joint bank account.
Creditors: When your child is a joint owner of your assets, your assets may become vulnerable to the claims of your child’s creditors or their ex-spouses in a marriage breakdown.
Land Transfer Tax: Adding your adult child to your home or cottage will trigger land transfer tax. If you simply keep the house or cottage in your name only, the house or cottage can be sold to a third party on your death, the net sale proceeds distributed in accordance with your will and no land transfer tax is incurred by your estate.
Capital Gains: Be aware that adding your child to the title of any property that isn’t your principal residence may trigger capital gains.
Loss of Control: If you want to sell or mortgage your property, both you and your child must agree to do so and sign the mortgage or sale documents. Also, if you mortgage the property, the credit of both you and your child will be affected (i.e. yours or your child’s borrowing power is tied up).
Finally, if you think you’re saving probate fees by adding your child as a joint owner to your assets - you’re wrong. There are currently no probate fees in Manitoba (although this could change in the future). Even when probate fees existed in Manitoba, they were relatively minimal. So, don’t allow the avoidance of probate fees to drive your estate planning decisions.
Turn your mind to the results before you decide to add an adult child to the title of your assets and consult with your estate lawyer, accountant and financial advisor. The nature of your estate assets and your testamentary wishes will change over time. A well-drafted, general will may be the best and most flexible way to proceed. Putting assets into joint ownership can create unintended consequences.
If you decide to add an adult child to your asset as a joint owner to give that asset to the child by right of survivorship, clearly document your intentions in writing. If a dispute arises among the beneficiaries/estate leading to court action, the judge will consider your written documentation as evidence of your intentions.
One final note, as a word of caution to executors: the executor of an estate must take into account all assets, whether solely owned by the deceased or jointly owned. Executors can be held responsible if they fail to account for all estate assets (which, as explained above, can include jointly owned property). If you are an executor, don't assume that a jointly held asset simply passes to the surviving joint owner. Always consult with your estate lawyer before compiling the estate asset inventory.
This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor-client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact one of our lawyers at 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).