Q: Is it true that adding my children as joint account holders on my bank accounts or as joint owners of any real estate will help avoid probate fees?
A: Joint ownership with right of survivorship is a legal arrangement where two or more individuals jointly own an asset. When one of the individuals passes away, the asset transfers to the remaining joint owner(s). Joint accounts and land that transfer in such a way do not form part of the deceased’s estate and are not subject to probate fees. Joint accounts with right of survivorship transfer upon death and the funds are immediately available to the other joint owners.
There are a variety of other considerations that arise. Any asset that is jointly owned is fair game for any of the owners’ creditors and this includes divorce. If an adult child is given joint ownership of a bank account and subsequently splits with his spouse, the contents of the account might be included in the matrimonial property. The ex-spouse could be entitled to a portion of those funds.
The same is true of other creditors. Anyone to whom that child owes money can go after the joint account.
There could also be significant tax implications to giving joint ownership of an account to an adult child. Since the contents of the account or the land are essentially being gifted to the child, taxes payable on them could become immediately due.
This could also be true of the capital gains on second properties such as cabins. Also, careful accounting of any earnings from the asset should be recorded for tax purposes. Always consult an accountant before placing an asset in joint names with adult children.
Because joint assets do not form part of the deceased’s estate, care should be taken to make sure that there will be enough liquid assets in an estate to cover any debts, taxes or other expenses. If all of an individual’s money passes via joint ownership, an estate may have to sell off assets to cover taxes, funeral costs or other debts.
Finally, some beneficiaries might not be happy that assets were excluded from an estate. There have been numerous legal battles fought over the intentions of a deceased parent in adding an adult child as a joint owner of an asset to the exclusion of others.
Did the parent mean for the assets to pass directly to the child or was the child added to the account strictly to help with financial management? Most people would say, “that would never happen in my family” and they probably are right, yet legal battles over estates go before the courts every day.
Probate fees in Saskatchewan are $7 on every $1,000 of the estate. Legal battles, lost opportunities for tax planning and losing an asset to a child’s creditor can be much more costly. The next column will talk more about joint ownership and how to do your best to prevent those sorts of battles from starting.
Brayden Gulka-Tiechko, student at law in McDougall Gauley’s Moose Jaw office, helped research and draft this article.
This article is presented for informational purposes only and does not constitute legal advice. The views expressed are solely those of the author and should not be attributed to McDougall Gauley LLP. Contact: firstname.lastname@example.org.