When it comes to bank accounts and investment accounts, some couples prefer joint ownership while others are strict about maintaining separate accounts.
Joint ownership with your spouse
There are pros and cons to joint ownership of bank accounts and investment accounts with your spouse.
There are some benefits to having your spouse as a joint owner like:
- No income tax payable upon your death
- Not part of your estate – no probate process or probate fees
- No delay in your spouse’s access to these funds.
On the other hand, the disadvantages of joint ownership are:
- Funds available to your spouse’s creditors
- Cash may not be available to pay your taxes and other debts after death thereby forcing your executor to sell other assets
- Funds not available for distribution to other beneficiaries
- Needs careful record-keeping for income tax purposes during your lifetime.
For estate planning purposes, most spouses should have joint accounts unless the disadvantages pose real problems in their particular circumstances.
Joint ownership with a child or other person
There are often reasons why a lone surviving parent might want to have a joint account with an adult child:
- So the child can pay the parent’s bills
- So the child can manage the money (e.g. reinvesting expired GICs).
- To leave the remaining money to the child after the parent’s death.
- To avoid probate process and probate tax on the account.
Despite these reasons, putting a bank account or investment account into joint ownership with anyone other than your spouse is typically NOT recommended. There are a number of reasons for this:
- Funds are immediately available to this other person’s creditors (including in a divorce)
- Funds may not be available to pay your debts after death
- Funds not available to your other beneficiaries
- Careful record-keeping is required for income tax purposes during your lifetime
- Many family fights have occurred over joint accounts.
Generally speaking, the disadvantages of joint ownership with children are greater than the benefits. Be very cautious about putting children as joint owners of your bank and investment accounts.
If you need the regular assistance of your child for bill payment and money management, there is a better way to give your child power over your accounts. Simply go to the bank with your child and give your child signing authority over your account (rather than joint ownership). Another alternative is to set up electronic banking and have your child help you do your regular banking from the comfort of your own home.
If you were considering making an account into a joint account with a child so that the child would receive the funds after your death, then you can achieve the same result with a clause in your Will that gives the account to the child. Even though this may subject the account to probate tax and the probate process, it is cheaper than having your family litigate whether your child is entitled to the account.
Cautionary Tale: Fighting all the way to the Supreme Court of Canada
Surviving family members fighting over joint bank accounts left by a deceased parent has been such a problem that the Supreme Court of Canada had to address the issue three times in 2007.
In these cases, three different Ontario families had the same problem. An elderly parent had a bank account that was made into a joint account with an adult child. After the parent died, another family member challenged the adult child’s right to keep everything in the joint account. In two of the cases, the challenging family members were siblings of the adult child, and in one case, the challenge came from the ex-husband of the adult child.
Even though it might be obvious to many people that the purpose of a joint account is to allow the surviving account holder to receive full ownership of the account, the Supreme Court of Canada disagrees. As it stands now, the law in Canada is that an adult child does not automatically gain full rights to a joint account after a parent dies.
Instead, the surviving child must prove that it was the parent’s intention to give the adult child full rights to the joint account after the parent’s death. Precisely what evidence is sufficient under what particular circumstances was not exhaustively decided by the Supreme Court of Canada.
With this continuing uncertainty, why risk causing a family fight over this issue? Avoid joint accounts with your children and it will never happen.