Tuesday, May 30, 2023
HomeIssues2017 - Fall EditionDefeating the Probate Tax of a Jointly Held Asset – Part I

Defeating the Probate Tax of a Jointly Held Asset – Part I


As our parents become elderly, and very often become incapable of managing their finances, often one child, and sometimes more than one, is appointed as a Power of Attorney over the parent’s financial affairs. In the process, the parent sometimes will add this child to their bank accounts as a joint account holder. The question becomes: is this a good strategy from all sides?

Obviously, from a financial management perspective, while the parent is alive, having a child whom the elderly and often infirm parent trusts completely added to accounts is a good strategy. Someone has to manage the finances, pay bills, and have access to the elderly parent’s accounts. Yes, there is tremendous potential for financial abuse, but the purpose of this article is to discuss a completely different issue.

The issue I want to focus on is what happens to the proceeds in the account once the elderly parent dies, if one child is a joint account holder. You would think that as a joint account, the account would pass directly to the other joint account holder and no probate of the account (and more specifically, its contents), would occur. This is standard survivorship rules when an asset is held jointly, like a joint account, and also property held as joint tenancy. Again, if the account is held jointly, the assets in the account pass directly to the joint account holder, and do not go into probate. Therefore, adding child to an elderly parent’s account as a joint account holder sounds like a good strategy to avoid probate of the deceased parent’s bank account.

However, the Supreme Court of Canada, the highest court of our country, held differently, when they were presented with this legal question. In the case of Pecore v. Pecore, the mother added her daughter as a joint account holder to her bank account for management purposes. When she died, the daughter, as the joint account holder with survivorship, felt that the account with all its money was hers, and hers alone; she did not wish to share the proceeds with her siblings. Her siblings objected, saying that is not what their mom intended. A lawsuit was launched, and it was eventually heard at the Supreme Court of Canada.

The Justices of the Supreme Court of Canada ruled that as there was no written intention that the monies in the bank account should flow to the daughter upon the mother’s death. The daughter, in effect, became a trustee to the mother’s account, with the account becoming a Resulting Trust. The daughter had no ownership rights by survivorship to the money in the account, as she became the trustee to the account, as a Resulting Trust, when the mother died.

The consequences were two-fold. First, the Court required the daughter to share the proceeds of the bank account/trust with her siblings, the beneficiaries under the mother’s will. But more significantly, because the bank account became a trust, it fell into the estate of the deceased mother and its contents were required to be probated.

The upshot: adding a child to a parent’s bank account or anything else held jointly by law, such as a home held as joint-tenancy, does not avoid probate of that asset. Once a Resulting Trust is created, the contents of the trust fall into probate. Although the child can manage the parent’s asset during his or her lifetime, upon death, the asset falls into the estate, is probated with a probate tax and is eventually distributed amongst all beneficiaries under a will.

The important point is that if parents believe that by adding a child to a joint asset, they can defeat the probate tax, the Supreme Court of Canada has held otherwise. However, there is a strategy available in Ontario only that can defeat the probate tax under this scenario.

Stay tuned to the next Family Matters in Milton article for Part II on this issue.

If you wish to have more information about wills and estate planning, contact Gary D. Indech at 905-636-8890 or 416-271-4908, or send him an email at gary@indechlawchambers.com.


Gary Indech
Gary Indechhttp://www.indechlawchambers.com
Gary D. Indech studied law at the University of Windsor and the University of Detroit-Mercy, graduating from the joint law program in 1994, with his J.D./LL.B. degree. Gary specializes his practice in two areas: residential real estate (including purchases, sales and mortgage refinancing) and wills and estate planning. His focus in estate planning is four-fold: seniors and elder estate planning, estate planning for individuals with disabilities, estate planning for individuals with corporate/business interests, and estate administration (that is, probating estates when people have died). Gary approaches the practice of law with the philosophy of courtesy, integrity, honesty, patience and professionalism. He listens carefully to his clients’ needs and devotes his full attention to advising and solving all issues. He also offers free mobile legal services as an added-value service. Areas of Practice Real Estate Wills and Estates Elder Law Address: 207 Mary Street, Milton, ON Phone: +1(800)650-2740 Web: http://www.indechlawchambers.com

- Advertisement -

- Advertisement -