The danger of joint accounts

By Gordon Powers, January 7, 2011

While avoiding probate taxes may seem appealing, transferring assets into joint ownership with your children can sometimes backfire.

As parents age, it's not unusual for them to open a joint bank account with one or more of their adult children.

In some cases, this is simply to allow someone else to do the banking and pay the bills, with no thought of that child receiving the money upon the parent's death. Others do it to avoid provincial probate taxes upon death, fully intending that the child on the joint account gets the money directly.

Probate fees are a tax paid in most provinces when a will is registered with the courts. Upon death, the fee is calculated on the value of the estate's assets. Since jointly owned assets don't form part of the estate, they're not subject to probate — an appealing option in high-probate-fee provinces such as Ontario and British Columbia.

Too often though, the parent's intentions are unclear and costly family squabbles surface between brothers and sisters. Confused parents may say one thing to one child and give a conflicting story to another.

And then, of course, there are the actual regulations.

Except in Quebec, where the rules are quite different, when an account is held jointly between two individuals, both hold an equal, undivided share. In practice, however, the parent controls the assets, is entitled to any income and pays the necessary taxes on it.

It's only when the parent dies that things can get confusing. Was the money intended as a gift for the child named on the joint account? Or, was the joint account set up simply for ease of administration, and the parent's intention was to have the money divided equally among other family members?

In the past, the presumption was usually that the joint account was destined to be a gift. Now, however, thanks to two recent court cases, assets held jointly by a parent and an adult child no longer automatically fall into the child's hands when the parent dies.

In fact, the onus is now clearly on the adult child to prove his or her entitlement, particularly if other family members see things otherwise. If anything, it's now presumed that the money goes into the estate unless there is substantive evidence to the contrary.