I’m sure you’ve heard of someone who decided to add their adult child’s name to a parcel of land or bank account to “ease” the estate planning process and to “save probate fees.” There are pros and cons to taking this step, and it is so important to ensure that a statement of intention is included in the will itself to clarify the client’s plan.
Joint ownership of bank accounts
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Consider this situation: June is 80 years old and has three children. Sally, one of her children, lives near her and helps with day-to-day tasks. The other two children live in another province. June decides that she will add Sally to one of her bank accounts so that Sally can help with paying bills and dealing with daily expenses.
It is important to ask June what her intention is in adding Sally to the bank account. Does she intend for Sally to receive the remainder of the money in the account when June dies, or is the account to be split between the three children?
A number of years ago, the Supreme Court of Canada released a series of cases on this issue and clarified the “presumption of resulting trust” doctrine.
When property is gratuitously transferred, it is presumed that the person receiving the property holds the property in trust for the person who made the transfer. In other words, if the presumption of resulting trust was applied to the example above, it would be presumed that Sally was holding the bank account in trust to be split between all three siblings at the time of June’s death.
A written statement setting out the intention of the person making the transfer may include a statement in the will itself stating the specific bank account at issue and whether such account is to be transferred to the surviving account holder or divided between the beneficiaries. It is also helpful to find out whether any written statement of intention was made at the financial institution at the time of the transfer. It is critical that a consistent intention is stated across all documents.
Joint ownership of real estate
Saskatchewan, Manitoba, British Columbia and some parts of Ontario operate under the “Torrens” system of land registration. It was created in South Australia in the mid-1850s under the leadership of Robert Richard Torrens, a government official and member of the provincial parliament.
Based on his experience in registering the ownership of ocean vessels under merchant shipping laws, Torrens devised a method of making the land registry conclusive, which means the government or its agent guarantees an indefeasible title. The system eliminates the need for historical searches to prove validity of title.
Key things to keep in mind include:
- It is important to understand the land registry system of the jurisdiction when providing advice regarding the addition of registered owners to title. For example, in Saskatchewan there is no way to distinguish on the title between registered ownership and beneficial ownership.
- The transfer of property into joint names is irreversible unless all parties agree to the change. As a result, the presumption of resulting trust is inapplicable to gratuitous transfers of land in Saskatchewan.
This has created some interesting case law in Saskatchewan: Stubbings v. Stubbings (2018 SKQB 8), in which a father added his son to title but changed his mind at a later date; and Dunnison Estate (2017 SKCA 40), in which a mother transferred title to a cottage property into the joint names of herself and her two sons, and then changed her mind at a later date.
- Once the adult child is added to the title, that property now becomes open for seizure by creditors or could be found to be “family property” subject to a division in a separation or divorce.
- If the original owner decides they want to sell the property or mortgage the property, they now need to get written permission from the adult child to do so.
- If the property is sold, consideration needs to be given as to what the tax consequences of the sale will be to the adult child. The original owner may be able to shelter some of the gain using the principal residence exemption, depending on what property is sold, but the adult child will likely have to declare the income.
- If the transfer of land to the adult child would otherwise be subject to GST/HST, such as farmland, it is important that the adult child be registered for GST/HST in advance of the transfer to allow for self-assessment.
So while the addition of an adult child as a joint owner on title can avoid the need to obtain probate on that particular parcel of land (at least in some jurisdictions), careful consideration needs to be given to the potential, and often unintended, consequences of such action.
Amanda Doucette is a lawyer and partner with Stevenson Hood Thornton Beaubier LLP in Saskatoon. Contact: adoucette@shtb-law.com. This article is provided for general informational purposes only and does not constitute legal or other professional advice.
