Publications

By: Kiran Dhesa

When thinking about estate planning, many clients focus on two key goals: minimizing taxes and ensuring their families can administer their estate smoothly after death.

One strategy frequently used in British Columbia is joint ownership between parents and adult children. Assets are often registered jointly with the intention of simplifying matters later. While joint tenancy can offer advantages, it also carries significant legal and tax risks that require careful planning.

The Appeal: Avoiding Probate

The primary reason parents add a child as a joint owner is to avoid probate.

Probate is the court process that confirms a Will is valid and authorizes the executor to administer the estate. In British Columbia, probate fees are approximately 1.4% of the value of assets that pass through the estate (about $14,000 in fees on a $1,000,000 estate).

Probate can also take several months to complete, potentially delaying access to funds needed by surviving family members.

Assets held in joint tenancy pass to the living joint owner by right of survivorship. Jointly held assets typically do not require a grant of probate. In theory, this saves both time and probate fees.

However, the legal reality is more complex.

Risks

The individual adding a joint owner onto their asset, is opening themselves up to risk.

The original owner loses control over their asset. If the original owner wants to sell or re-finance, they need the joint owner’s approval.

Further, the asset may become exposed to any personal claims (i.e. from creditors, due to divorce etc.) of the joint owner.

The Presumption of Resulting Trust

In British Columbia, when a parent adds an adult child as a joint owner, the law presumes the child is holding the asset in trust for the parent. This is known as the “presumption of resulting trust.” This presumption does not apply to assets held jointly with a spouse.

During the parent’s lifetime, the child is presumed to hold the asset as a bare trustee for the parent. After the parent’s death, the presumption is that the asset forms part of the estate, unless there is clear evidence that the parent intended the child to receive it beneficially.

This presumption can create unintended consequences.

Intent of Joint Tenancy

Many parents add a child to an account simply for administrative convenience, such as assisting with bill payments or banking. Legally, this often creates a bare trust relationship. Depending on the circumstances, the child may have trust reporting obligations, including filing a T3 Trust Return with CRA, and a Land Owner Transparency Report for real estate.

After death, disputes can arise.

A parent may add a child to their bank account with the intention after death the account be distributed in accordance with their Will. However, after the parent’s death the bank may transfer the account to the child who was joint owner of the account, without investigating the parent’s intention, or applying the presumption.

Conversely, if the parent’s intention was for the child to receive the bank account as a gift, the parent’s other children can make the argument that the presumption applies and the funds should form part of the estate.

Either way, there is confusion.

Tax Considerations

If a parent adds a child as a joint owner of their asset, this may constitute a disposition for tax purposes.

If the asset is the parent’s principal residence and the child does not live in the home, the availability of the principal residence exemption may be in question on the transferred portion.

Capital gains implications can arise both at the time of transfer and on death. Improper planning can result in unexpected tax liabilities.

The key to joint tenancy planning is clear documentation of intention at the time the joint ownership is created. Without written evidence, courts will apply legal presumptions that may not reflect the parent’s wishes.

Joint tenancy can simplify estate administration but when implemented without proper planning, it can create disputes, tax exposure, and outcomes that contradict a parent’s.

If you have any questions regarding joint tenancy in estate planning, please contact the author, Kiran Dhesa, or any member of our Estate and Wealth Advisory Group.