My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Wednesday, November 9, 2011

Joint Bank Accounts-Documenting your Intention

In my blog Probate Fee Planning-Income Tax, Estate and Legal issues to consider, I talk about how holding assets in joint tenancy can be problematic post the Supreme Court decision in Pecore v Pecore.

I further discuss that many parents who put funds in joint accounts with a child/children to save on probate taxes (sometimes creating substantial income taxes as result) are often not clear as to their intention in regard to the funds: i.e. is it the parent’s intention that the funds held jointly with one child belong to that child, or do they belong to all their children with an understanding that the child on the account will share with their siblings?

The Pecore decision states that where assets are transferred without consideration (such as to a child to avoid probate), the presumption of a resulting trust will operate in almost all cases save transfers from a parent to a minor child. This means that when a parent transfers assets into a joint account with one child, there must be evidence of the intention to make a gift to that specific child or the joint account is presumed to be held in trust for the parent’s estate and the proceeds are divided pursuant to the parent’s will. In certain cases it may have been the parent’s intention to share the funds with all their children equally; however, in other cases the parent may have wanted a specific allocation to a specific child.

In order to avoid the presumption of a resulting trust post Pecore, lawyers have been yelling from the rooftops that people need to document their intention in regard to joint accounts. Well, the enterprising law firm of Fish & Associates has tried to come to the aid of Canadians with The Joint Asset Planning Kit.

For $45 the firm will sell you a 15 page document that, according to the website, “allows a parent to clearly express his or her intentions regarding joint parent-child accounts. If a parent wants the assets in a joint account to go to the joint owner, then this is spelled out clearly in the document.”

On the Jointasset.com website, Barry Fish states that he took “pains” to ensure that The Joint Asset Planning Kit can't override a will. “We've been very, very careful to ensure that, under no circumstances, do we ever want this document to be construed as a revocation of a prior will or testamentary disposition.”

I want to be clear of two things at this point. Firstly, I have never met Barry Fish or any of his associates (although we were quoted together in this article on estate planning for the black sheep child) and I am not receiving any compensation for discussing their website. Secondly, I can only rely on Mr. Fish’s assertion that this kit will stand up in a court without having any effect on a prior will.

If you have a lawyer, I suggest you consider meeting with them to draft a document stating your intention in regard to any joint bank accounts (this is the case whether you want a joint account to be shared equally by your children or not). If you do not have a lawyer, you may wish to consider purchasing The Joint Asset Planning Kit, but be clear, I am not endorsing such, just noting the kits existence for your consideration.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

2 comments:

  1. Mark,

    Let start by saying, I am not a lawyer. I am an accountant like you.

    I was speaking a while back with an estate planning lawyer I know and he had mentioned to me that the concept of a side document, in his opinion, would not work (if challenged) when the plan is to pass the assets to someone other than the surviving owners.

    His argument was that a joint account is an arrangement where both owners have equal and unrestricted access to the accounts assets. If the side document indicates that other parties are entitled to the assets then the document effectively confirms the account is not a true joint arrangement and should then pass to the estate.

    I come across clients every day with joint ownership issues and I too go to great lengths to explain the pitfalls of these arrangements. Joint accounts are not simple at all and care needs to be taken to plan appropriately.

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  2. Hi Dean:

    Thanks for your comments. As we are both accountants and not lawyers, I don’t want to get into legal concepts and issues that are beyond our expertise. In the blog I comment that where there is a joint account with a child, the courts have said there must be evidence of the intention to make a gift to that specific child or the joint account is presumed to be held in trust for the parent’s estate. As, I understand the side document provides evidence of that intention. On the flip side, if the document states the joint account was held for all the children, I would assume that confirms the account was as you say, not a true joint arrangement and the funds belong to the estate. The issue then appears to be whether the joint account would be subject to probate if its legal nature was not a joint account. Anyways, as I say in my blog and you say in your comment, this is a complex area and people need professional legal advice before opening joint accounts.

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