COLUMN: Transferring assets
Today, many seniors hold bank accounts or have their home and family cottage registered in joint tenancy with their adult children.
Joint tenancy is a common estate planning tool often used to avoid probate fees and anticipated challenges to a will.
Unfortunately, it is also a concept commonly misunderstood in terms of potential adverse legal and tax consequences.
The most important feature of joint tenancy is that, when a joint tenant dies, his or her ownership interest automatically passes directly to the other surviving joint tenant(s) outside of the deceased joint tenant’s will.
This special characteristic of property held in joint tenancy is referred to as the “right of survivorship." In principle, because property held in joint tenancy passes outside of the deceased owner’s estate, probate fees do not apply. In contrast, property not owned in joint tenancy forms part of the deceased owner’s estate and is divided according to the owner’s will or, without a valid will, according to British Columbia’s intestacy laws.
The B.C. Wills Variation Act permits children and spouses of the deceased persons, who are disappointed with their inheritance, to apply to court and claim for what the court may decide is a fair and equitable share and, if successful, effectively re-write the deceased person’s will.
Elderly parents often jointly add their adult children to bank and investment accounts to assist with bill payments without the intention the joint account funds should pass directly to the children added to the account as an inheritance.
Generally, only assets within the estate may be claimed under the Wills Variation Act; however, transfer into joint tenancy does not always avoid Wills Variation Act claims.
If a gift to the joint tenant is intended, evidence will be required to ensure the joint account funds do not form part of the deceased parent’s estate under what is known in law as a “Resulting Trust.” That evidence may take the form of helpful estate planning tools known as a “Deed of Gift” and a “Memorandum of Wishes” which we will describe in future columns.
Unintended financial consequences of placing one’s assets in joint tenancy with adult children include exposing that asset to the claims of the adult child’s creditors, like former spouses in the event of a divorce.
If the adult child already has a principal residence, becoming a registered owner to a second property can engage the Income Tax Act.
A taxable capital gain may be triggered when the parent’s house is ultimately sold. If the parent’s house is rented out, taxable income may be attributable to the adult child.
In summary, before transferring assets into joint tenancy with a child or any other person, it is prudent to take steps and formally set out your true intentions and expectations to help avoid future expensive and protracted court proceedings. This will increase the chances that your intentions and estate planning wishes will be carried out as you want and not how others may decide for you after you are no longer here to speak.
Oliver Hamilton, BA (Econ), MBA, LLB Severide Law, Associate Lawyer with the estate planning group of Severide Law in Ladner