Q: I would like to add my adult child as a joint account holder so he can help me with daily banking and bill paying. How will this affect my estate planning?
A: How would you like it to impact your estate planning? The problem is that once someone has passed away, no one can ask them that question. This is why it is important to make your intentions clear at the time the adult child is added.
In the Jan. 10 column, we discussed the use of joint ownership of accounts or real property in estate planning.
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We talked about possible tax implications and the dangers of exposing the asset to your child’s creditors as well as possible issues of an estate not having enough disposable cash to cover the deceased’s debts.
Recent decisions from the Supreme Court of Canada have changed and clarified the way bank accounts that have been placed in joint names with adult children are treated once the parent passes on.
The first important point pertains to gratuitous gifts of joint accounts. If two people open a joint account, both contribute to it and then when one passes away, there is no legal question that the survivor is entitled to the remainder.
The law is leery of gifts. When an individual is “gifted” joint ownership, a court will want to know that a gift was actually intended.
In Pecore versus Pecore (2007 SCC 17), the Supreme Court of Canada had to address this issue. That decision gave us a list of factors that a court would have to examine to determine if a gift was intended, or if the parent wanted help with banking.
Who accessed and added to the funds? Was it clear from the bank documents that a right of survivorship was intended?
Who paid the tax on any interest on the account? The court will examine factors on a case by case basis.
If you want help with the account but do not want to give that account to the child, perhaps the best solution would be to add the child as a signatory on the account instead of making it a joint account. A parent could set up online banking and have his child help from the comfort of his home. A power of attorney is another viable solution.
If you are convinced that a joint account would be best, then a simple trust declaration written up by a lawyer is advisable. It would state that you are only adding your child as joint owner to get help with your finances and that your intention is not to gift its contents. Sign it, have your child sign it and keep it with your will. You might also want to provide a copy to your bank manager.
If the account is to become the sole property of your child when you die, have that intention put in writing also, keep it with your will and communicate it to your bank manager.
