Why people choose joint tenancy as a way to avoid probate fees, and some of the pitfalls of joint tenancy

Another form of trust that we see in wills is an insurance trust.

Charles Ticker, founder of the Charles B. Ticker Law Office in York Region, discusses why people choose joint tenancy as a way to avoid probate fees, and some of the pitfalls of joint tenancy.

One of the main concerns a lot of our clients have is the payment of probate fees or what are known as estate administration taxes in Ontario. The concern is that, on their death, if they have a lot of money in a bank or a GIC, their family will be required to have the will probated by the court and pay the Estate Administration Tax in order to get the funds released by the financial institution after their death. The tax is calculated at 5% on the first $ 50,000 of the estate and 1.5% of the amount over $ 50,000 and is only payable if the will needs to be probated. So, if they have $100,000 in the bank, the Estate Administration Tax will be $1,000.

What a lot of clients do to avoid this tax is put their adult children, or more frequently one adult child, on the account or the GIC with them as a joint tenant. However, issues can arise when the parent dies. As far as the bank is concerned, it’s a joint account, and the child becomes the owner of that account. However, the parent might not have intended that child to inherit that money and take over the account. The expectation could be that the child will hold that money in trust for the other beneficiaries of the estate. If the account is held jointly with a minor child, there is a presumption that the assets are intended as a gift.

Litigation usually arises in circumstances where the intention is not clear as to whether or not the account was intended as a gift for that adult child or if the money was intended to be held in trust for the estate. Sometimes that beneficiary, regardless of the parents’ intention, decides that they’re going to keep the money, especially if they have been a primary care giver. Quite often, this causes disputes with the other beneficiaries. These cases have been dealt with by the courts for many years. Two recent decisions by the Supreme Court of Canada have dealt with these issues and now present some guiding principles for the profession and people dealing with these kinds of assets.

Joint tenancy is a very common practice but it can be fraught with problems and difficulties if the parties aren’t clear on what is supposed to happen with the jointly held asset. Even though the Supreme Court dealt with these issues in 2007, the average person may not be aware of these cases or the ramifications of the case law. Some financial advisers and even lawyers may not be aware of these cases because sometimes it takes time for the principles established by case law to work its way into day-to-day practice.

As professional advisers, we sit down with our clients and ask them about their jointly held assets and what their intentions are for those assets after they’re gone. We do take quite a bit of time to talk about that and to make detailed notes in case evidence is required for a court challenge. We also have our clients sign documents in which they clearly set out their intentions to make sure that there are no disputes about the funds after the client’s death.
If you, or someone you care about, is dealing with estate law issues in the Markham, Ontario Region, contact Charles B. Ticker for a consultation.

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This article is taken from a Sept 29, 2009 interview with Charles B. Ticker, Estate Lawyer with Charles B. Ticker Law Office, a Markham, Ontario Wills and Estate Law Firm. Note that laws vary from province to province. Please consult with a lawyer in your own area to be sure of the laws and specific issues in your own jurisdiction.