Joint account at death — a rightful gift or a family obligation? Many aging parents open joint bank accounts with their adult children in order to better meet financial and estate planning needs. Such accounts are typically subject to the right of survivorship, meaning the balance in the account becomes the child's property when the parent dies. However, difficulty can arise when the child withdraws the balance of the account following the parent's death. Is the child the rightful owner of the funds, or is there an obligation to hold the funds for distribution as part of the parent's estate? Two recent Supreme Court of Canada (SCC) rulings hold that, unless a parent clearly indicated that such a joint account would become the child's personal property following the parent's passing, the account would become the property of the parent's estate. In one of those rulings, Madsen Estate v. Saylor (2007 SCC 18), a father made his adult daughter a joint holder of accounts that were subject to a right of survivorship. The daughter was also an executor and was given power of attorney. During the father's life, the funds in the accounts were only used for his benefit, and he both controlled the accounts and declared and paid taxes on all income from them. After the father's death, the daughter was sued in her role as an executor by her siblings, on the grounds that she didn't include the accounts in the distribution of the father's estate. In this case, the SCC pointed out that the banking documents didn't contain any references to beneficial entitlement to the accounts, other than that both accounts carried a right of survivorship. Without clear documents that expressed the father's intention, the SCC gave little weight to the issue of beneficial entitlement. The SCC concluded the daughter didn't present sufficient evidence to prove the accounts shouldn't be returned to the father's estate. In Madsen, the SCC referred to another recent case — Pecore v. Pecore (2007 SCC 17) — in reiterating that additional factors should be considered, including whether the transferor (the father) controlled and used the funds in the account and whether the transferor paid tax on the income from the account. These cases reinforce the importance of parents clearly identifying, in a written declaration, the person(s) who are beneficially entitled to the assets in any joint accounts at death. Failing that, a resulting trust might apply so that the accounts remain with the estate, regardless of what may have been the parent's well-meaning intentions. Lorn is a Partner and the Leader of the Tax Team. He can be reached at (416) 644-4328 or by e-mail at lorn_kutner@mintzca.com. Mintz & Partners | 1 Concorde Gate, Suite 200, North York, Ont., M3C 4G4 | www.mintzca.com Phone: (416) 391-2900 | Fax: (416) 391-2748 | E-mail: info@mintzca.com Tax Alert is an e-newsletter written by the Tax Team of Mintz & Partners LLP. Please go to http://www.mintzca.com/index.php?section=taxdirectory to learn more about our Tax Team. The issues raised are for information purposes only. Readers are urged to contact their professional advisors before acting on the basis of the material contained herein. |