On the surface, a joint account represents concurrent ownership by two or more persons of a bank or brokerage account. It's a commonly used financial device between spouses and sometimes between an aging relative and another adult family member.
Often, the monies in the account come from one of the two joint account holders, or one is the primary depositor. The transfer of monies from sole ownership to joint account is a disposition for tax purposes, and may or may not be in the nature of a gift.
The reason for the prevalent use of joint accounts is they're convenient. Such an account enables one or both of the joint account holders to deposit or withdraw monies to pay bills with ease.
Many people also use joint accounts as a form of estate planning. Where a joint account and its proceeds pass outside a person's estate to the named survivor, no estate administration tax or probate fees are payable on the value of the account.
However, while there is a presumption of advancement or gift of the proceeds to the survivor when spouses hold a joint account, there's no such presumption between a parent and an adult child. In fact, case law suggests where the joint account holders are parent and adult child, there's some presumption monies in the account are held only to facilitate efficient management of the parent's finances. So it should not be assumed that a joint account is separate from a deceased parent's or relative's estate.
For this reason, where the survivor of two joint account holders is to be, or claims to be, entitled to the balance of the joint account upon the death of the other, it's necessary to establish an intention to make a gift of the proceeds of the account to the survivor. That is, a right of survivorship.
Intent's not clear-cut
The Supreme Court of Canada has made it clear the deposit of monies into a joint account is not alone sufficient to establish that the depositor intended a right of survivorship in the other joint account holder.
In Pecore v. Pecore, the Court indicated that bank or brokerage account opening forms provide strong evidence of the transferor's or depositor's intention as to how the balance should be dealt with on his or her death — particularly where the documents specifically confirm a survivorship interest.
But some forms aren't clear, and may be disregarded or given less consideration. Madsen Estate v. Saylor suggests it's not enough to merely say "joint with right of survivorship." Whatever the words contained in the forms, implied intentions may still be rebutted by evidence to the contrary.
From these cases, it's clear there are three possible legal meanings and outcomes following the creation of a joint account:
So the fundamental question is, did the joint account's creator and primary depositor intend the survivor to have beneficial ownership on the account creator's death, or does the property form part of the depositor's estate, to be distributed in accordance with his will?
If there's an issue about whether there's a right of survivorship attached to the account, the deceased's estate trustee may have to make a decision on and/or seek the assistance of the courts in doing so. A number of factors may be considered when deciding whether or not a joint account forms part of a deceased's estate.
One such factor is the history of control and use of the funds in the account during the depositor's lifetime.
However, the fact that the transferor retains control during his or her lifetime is not necessarily inconsistent with an intention to make a gift of the balance of the account on his or her death.
Also, the transferee, despite having the right to do so, may not wish to withdraw funds during the depositor's lifetime because he or she wants to ensure sufficient funds remain in the account for the balance of that person's life.
As well, the dynamics of the relationship may be such that one of the joint-account holders is relied upon to make decisions about use, though the other still has the right to do so.
Another factor is the tax treatment of the joint account; essentially, whether or not the transferor or the depositor pays tax on the income earned by the joint account.
If the transferor pays the tax, this may show an intention to transfer only bare legal title and no beneficial right of survivorship. So it may support a resulting trust in favour of the transferor's estate.
Alternatively, if capital-gains tax was paid by the depositor in the year the joint account was set up, this may show an intention to transfer legal and beneficial title. Still, an intention to grant a right of survivorship may not equate to a right of beneficial ownership during the lifetime of the transferor.
Power of attorney
While each case is different, where the transferee holds a power of attorney in respect of the transferor, this may indicate that the transfer into joint names was a gift. The reason for this is that a power of attorney already allows the donee of the power of attorney to manage property, including any bank accounts, without the need of also making them joint. If the accounts are also made joint, it may suggest the donor/trans-feror intends something more than mere management.
The significance to be attached to the existence and use of a power of attorney for property is unclear, particularly where it can't be demonstrated that the grantor of the power, and transferor to the joint account, understands the relationship and distinctions between the two things.
It's arguable a person who's incapable or suffering from diminished capacity at the time a joint account is created can't form the necessary intention for there to be a right of survivorship with respect to that account, or to make the gift the existence of that right signifies. A valid gift requires the grantor to be capable of having the intention to make a gift.
That being said, the legal test to make a valid gift during a person's lifetime is generally not considered to be as stringent as that for making a will.
Transfer of monies
The conduct of the parties and evidence arising subsequent to the transfer of monies to a joint account may also be considered when trying to discern the intention of the creator of a joint account.
If the account was accessed and made use of openly by the transferee for his or her own benefit during the grantor's lifetime, it may be difficult for others to later claim the account is held on resulting trust for the deceased's estate.
In other words, if the grantor and others with a financial interest in his or her estate were well aware of the personal use being made of monies in the joint account and raised no complaint then, it may be too late.
Also, if, based on legal or accounting advice, the account was set up or continued as an easy method to transfer assets to adult children and avoid probate, then the assets may well pass outside the transferor's estate.
Originally published in Advisor's Edge Report
Read this article and full issues on the iPad - click here.