Joint Ownership between Parents & Children: What’s the Intention?

Joint Ownership between Parents & Children: What’s the Intention?

Lawyers are often faced with common questions from clients:

  • “If I add my child as a joint owner to my asset, can I avoid probate of my estate?”
  • “As I get older I may need help paying my bills. Will it help if I add my child as an owner to my bank account?”

To both questions, we generally respond with a typical “lawyer” answer: “It depends”.

There are cases where adding a child as an owner to an asset (bank account, house, etc.) is a beneficial estate planning tool. However, as with most transactions, it’s important to obtain legal advice before putting your plan in action. (In this article any reference to “child” means an adult child considered to be financially independent of his/her parents.)

 

Joint Ownership & Right of Survivorship

When people own property as joint tenants, they share ownership and control of the whole asset. When one owner dies, ownership automatically passes to the survivor. As a result, the asset does not form part of the deceased owner’s estate. It’s common for spouses to own assets jointly so probate is only required on the death of the survivor.

Does the outcome change if a parent jointly owns an asset with his/her child? Maybe. But one thing is certain, it all boils down to intention. What does the parent intend by transferring the asset into joint names?

It’s common for an aging parent to transfer assets into joint ownership with his/her child so the child can help the parent administer his/her finances and property. When the parent dies, the issue becomes whether the transfer was intended to be a gift to the child or whether it was purely for convenience and/or estate planning purposes.  Unfortunately, if there is no written documentation of the parent’s intention, the matter can get complicated.

 

Gift or Trust?

Sometimes a parent will add the child to the title of his/her house because they want to make a gift and use the asset as a vehicle for that gift. If this is the case, an Acknowledgment of Gift can properly document the parent’s intention. On the parent’s death, it is clear not only to the child, but to other siblings and family members, the transfer was intended to be a gift.

Alternatively, a parent may add their child’s name to a bank account so the child can help pay bills and manage funds. The only reason the child has been added as a joint owner is for convenience. In this situation, an Acknowledgment of Trust is recommended to properly document the parent’s intention. The Acknowledgment of Trust confirms the child is holding the asset, in trust, to be distributed in accordance with the parent’s Will.

What if there if the intention is not clear?  Where there is no documentation to indicate the parent’s intention Canadian courts have consistently ruled there is a presumption of resulting trust.  This means the child is presumed to hold the asset, in trust, for the parent (and his/her estate) and the asset is to be distributed in accordance with the parent’s Will. The child can rebut the presumption, but there must be sufficient evidence to show a gift was intended.

 

Considerations

Adding a child as a joint owner to your asset may be convenient, but there are other considerations:

  • Tax – there can be unintended tax consequences;
  • Creditors– the asset may be fair game to both the parent and child’s creditors;
  • Divorce – if the adult child goes through a divorce, the joint account could be considered matrimonial property and risks being distributed to the ex-spouse;
  • Control – your child will have full and unconditional access to the asset.

There may be more practical alternatives to joint ownership. Perhaps granting an Enduring Power of Attorney or setting up an inter vivos trust (a.k.a. “living trust”) is a better way to achieve the desired result. To determine what’s right for you and your family, talk to your lawyer. We can advise you on the benefits and risks of joint ownership, help you build an effective estate plan and ensure your intentions are properly documented.

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Hilary Pritchard
Hilary Pritchard helps you navigate the turning points of life. She is a Student-at-Law with Pritchard & Co. Law Firm, LLP. Contact Hilary at (403) 527-4411 or at hpritchard@pritchardandco.com