One very common way of avoiding estate administration tax (formerly known as "probate tax") is the utilization of joint accounts. A common feature of joint accounts is that they provide a "right of survivorship" between account holders. In other words, if one joint account holder dies, the entire account can become the property of the surviving joint account holder.
The use of joint accounts, however, is an exercise in the balance of convenience and control. We are frequently advising our clients that, despite the added convenience and tax-saving advantages associated with joint accounts, adding another person to an account substantially reduces your control over that account.
In our practice, we are often faced with the issue of a bank account held jointly between a deceased parent and an adult child. Thankfully, the Supreme Court of Canada has provided guidance through its decision in Pecore v. Pecore. This decision stands for the principle that, when assets are held jointly between a parent and an adult child, there will be a presumption of "resulting trust" upon the death of the parent. What that means is that the asset will revert back to the estate of the parent instead of passing to the adult child. This often comes as a surprise to people who are familiar with jointly-held assets passing to the surviving party by right of survivorship.
It is not uncommon for a surviving adult child joint account holder to rebut the presumption of resulting trust and attempt to have the jointly-held assets pass to them by right of survivorship. In order to do so, however, sufficient evidence must be presented to support the argument that the deceased wished for the assets to pass to the other account holder upon death. Documents such as Deeds of Gift can provide strong evidence as to the intentions of the testator and can help avoid disputes down the road. Deeds of Gift are little-used but extremely effective tools for giving away assets during your lifetime. These are formal documents that confirm a gift and can have a profound effect on the enforceability of that gift after death.
Another useful document is a Declaration of Intention. This document can be used to gift the right of survivorship of a joint bank account or some other jointly-held asset. Alternatively, it can be used to create a trust arrangement in situations where assets are held jointly out of convenience, but they are intended to benefit other beneficiaries after death.
Jointly-held assets often become the subject of stressful and expensive estate litigation. In order to avoid this, there are two extremely important things that should be done. The first is to write it down. Having something in writing that clearly identifies intention is the easiest way to ensure that jointly-held assets pass in the way you intend them to. While it would be ideal to have an experienced lawyer draft formal Deeds of Gift and Declarations of Intention, even simple, less-formal documents can help in ascertaining intention post-mortem.
The second thing to do is to communicate your intention clearly and meaningfully. Letting your loved ones know what you want to happen after you die is the single most important way to avoid estate litigation. We have previously mentioned in this space the benefits of a family meeting where testamentary intentions can be conveyed to beneficiaries. Despite the uncomfortable subject matter of these meetings, your family members and loved ones will be thanking you long after you are gone.
Ian Hull and Suzana Popovic-Montag are partners at Hull & Hull LLP, an innovative law firm that practices exclusively in estate, trust and capacity litigation. To watch more Hull & Hull TV episodes, please visit our Hull & Hull TV page.