An individual can hold property in his or her name or with another person. The most common types of property held jointly are homes, cottages and bank accounts.

Joint bank accounts are typically used by spouses. During their lives, each spouse may deposit and withdraw from the joint account without the consent of the other. On death, the first spouse to die does not have the right to leave the assets in the joint account by will; the hallmark of a joint tenancy is that the assets automatically belong to the survivor when the first holder dies.

Benefits of a Joint Account

Since the survivor automatically becomes the owner of the property, one benefit is that there is no need to seek probate for the particular asset. Jointly held property does not pass through a will and no estate tax is payable on such property. When a person dies, the Estate Trustee must obtain a Certificate of Appointment of Estate Trustee. Estate tax is payable based on the value of the estate.

For an estate valued at $500,000, the estate tax is about $7,000. To avoid this tax, many individuals place property in joint names but believe that the property will pass as if it had formed part of their estate.

Convenience — Joint Accounts with Children

It is not unusual for elderly parents to have joint accounts with children for convenience of having another person manage banking for an elderly parent. Let us return to the hypothetical Mrs. Smith. She is housebound, forgetful and finding it difficult to keep up with her day-to-day activities. Her daughter suggests a joint account so that she can help her mother pay her bills, write cheques and access cash for her. When Mrs. Smith dies, the bank accounts will not form part of her estate. Anything in the bank accounts will belong to her daughter. The charitable bequests will go unpaid and the other three children will be forced to challenge their sister. Lawyers will be retained. The $7,000 of estate tax that was saved by the joint account will seem small compared to the legal fees. This is not what Mrs. Smith had in mind. 

Significant litigation occurs because individuals use joint accounts without clarifying that the signing authority is only for convenience and that there is no intention to create a true joint tenancy.

Disappointed Beneficiaries

Before anyone places property in joint tenancy with anyone other than their spouse, they should check with a lawyer to ensure that they do not unwittingly benefit the surviving joint tenant and disappoint those who are to be beneficiaries of their estates. This practice is becoming far more common and an individual’s hard earned assets are often depleted by unnecessary litigation (which is often unsuccessful) to try to have the assets distributed to those who were intended to benefit.

Sadly, this situation occurs all too often. However, it is not restricted to family members. We are encountering situations whereby those who have no close family members will place assets in a joint account with a caregiver or a close friend. This should be avoided.

(Rosanne Rocchi is a partner at Miller Thomson LLP.)