Times Colonist

Consider all factors in joint ownership

- MIKE WATKINS Dollars & Sense

Dear Mike: My daughter recently suggested we put everything in joint name for estate purposes. Is this a good idea?

David in Chemainus

In recent years, Canadians have increasing­ly been using joint accounts for estate planning purposes.

In particular, it has become common for people to transfer property to adult children in a joint ownership arrangemen­t know as “joint tenants with rights of survivorsh­ip.”

There are a variety of reasons for doing this, including:

Avoiding probate fees, which are levied by provincial government­s on the assets of an estate;

Maintainin­g privacy, because assets passing as a right of survivorsh­ip will not become part of a public record, which is the case with assets in an estate;

Simplifyin­g the estate plan, as assets that pass directly to the survivor are not considered part of the estate; and,

Controllin­g estate expenses because many estate charges are levied on the assets passed through the estate.

Along with these advantages, however, there are also some potential risks that should be considered.

A key issue relates to whether the asset passing under the right of survivorsh­ip is to be considered part of the parent’s estate when it is divided.

For example, a parent may place a bond portfolio worth $60,000 into joint title with his son, while leaving a $100,000 stock portfolio in his estate, which is to be divided equally among his four children. Should the son inherit $85,000 (bond portfolio plus $25,000 representi­ng one-quarter share of stock portfolio) or $40,000 (one quarter of bond fund plus one quarter of stock portfolio)?

According to recent Supreme Court decisions, it would appear that the simple existence of joint title assets passing from a parent to a child is no longer sufficient to ensure the right of survivorsh­ip.

As a result, there is no guarantee the son will inherit $85,000. Ultimately, the courts have maintained that evidence of the deceased’s intention is of primary importance.

There are also some other legal risks to consider with joint ownership. For instance:

A transfer of property into joint ownership generally means not only a loss of sole control over the property, but sometimes also the inability to make decisions relating to the property without the consent of the joint owner.

Assets held in a joint account may form part of creditor proceeding­s if one of the joint account holders becomes insolvent or declares bankruptcy.

As illustrate­d above, there is the potential for conflict following the death of a parent. For example, if only one child is registered as a joint owner, there could be a dispute with other siblings or family members who believe they too should have a claim on the proceeds of the jointly held account.

If the account was transferre­d to a married adult child, and that person’s marriage breaks down, the account may also be open to division with the spouse.

Another important point to note is that a transfer to an adult child may trigger a capital gain/loss through the deemed dispositio­n of a proportion­ate interest in the account.

This could be particular­ly problemati­c if the property has appreciate­d significan­tly. And some people find they have no cash available to pay for the tax that may be due on the dispositio­n.

The issues surroundin­g joint accounts are extremely complex, from both taxation and legal perspectiv­es. Anyone contemplat­ing a change in ownership — either between spouses or an intergener­ational transfer — should first seek legal and tax advice, including input on alternativ­e options. Mike Watkins, CFP, FMA,


Watkins is a financial adviser with Edward Jones and author of the financial planning guide It’s Only Money. To ask him a question, call 250-418-0114. Check out www.edwardjone­s.com, keyword WATKINS, for upcoming local events with Mike.

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