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Estate Planning & Jointly Held Assets

26/05/2011


When discussing estate planning, our clients often indicate that they have been advised to hold assets under joint title to reduce probate fees. Sometimes joint accounts are used simply to help manage finances for an elderly parent. The legal and tax implications of transferring assets under joint title are poorly understood.

There is a distinct difference between transferring beneficial and transferring legal ownership. Two well-known cases deal with the legal ramifications and tax consequences of jointly held bank and investment accounts – Pecore v. Pecore, 2007 SCC 17 and Madsen Estate v. Saylor, 2007 SCC 18.

In the Pecore case, a father placed his assets into joint accounts with his adult daughter. The Supreme Court of Canada found that the daughter was able to provide evidence that the father intended for the joint accounts to transfer to her alone – a position that was challenged by her ex-husband.

In the Madsen case, a daughter was made a joint account holder with her father as well but the courts found in this case that the adult daughter, Patricia, did not provide evidence supporting her argument that her father intended to gift the joint accounts to her. As a result, the accounts formed part of the Estate (subject to probate) and her siblings, as beneficiaries of the Estate, were entitled to their share of the monies in these accounts.

The courts have indicated that they will look at whether the transfer is one of legal or beneficial ownership on a “case by case” basis using the following framework:

  1. Generally, there is a presumption that only legal ownership is transferred unless the transferee can show that there the intention of the transfer was the gift of beneficial ownership.
  2. There is a presumption that beneficial ownership transfers from a taxpayer to a spouse or from a parent to a minor child.

When only legal ownership of an asset is transferred, the asset will form part of the Estate and the asset is deemed to be disposed of at death. The tax consequences relating to that disposal are reported on the Final return of the deceased taxpayer and the beneficiaries of the Estate inherit the assets at their value on the date of death.

When beneficial ownership is transferred, the Income Tax Act stipulates that a gift made to a related taxpayer is transferred at its fair market value which may trigger tax consequences on the date of the transfer. Understandably, the capital gain that can be triggered by putting a cottage under joint title with adult children can come as a surprise.

When questions arise usually it is too late to ask what the transferor’s intention was and the assets that were held under joint title can result in long drawn out battles. In Manitoba, approximately $3,500 of probate fees are levied on an estate valued at $500,000. Simply put, it may be more beneficial to pay the probate fee and have the will speak to the distribution of the assets, rather than have your loved ones deal with the emotional or financial cost should a disagreement arise.

As with any element of estate planning, we advise that you consult your lawyer and your accountant to ensure that your intentions are documented, the tax consequences are understood and the desired result is achieved. To discuss this and other elements of estate planning, contact me or your local MNP tax advisor.

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