The article “Should You Consider Using Joint Accounts To Avoid Probate?” was originally posted on MoneySense on April 16, 2020.
Would listing Laurel as her aging mother’s joint account holder simplify management of her mother’s affairs if she is no longer able to do so herself? The alternatives are less risky.
Q. My mother is a widow and I am an only child (single, never married, with one child of my own). Now that she is 83, she thinks she should put my name on all her bank accounts and investments so if she becomes unable, I would have control as joint account holder to pay any bills that come up. My name is already on her condo. Would this avoid probate? We live in Alberta.
A. Joint ownership is a common strategy used by aging parents and their children. It is sometimes recommended by banks, financial advisors and others.
The most common reason parents add a child as a joint account holder is to help with day-to-day administration of an account. However, the same authorization can be provided to banks and financial institutions using an enduring power of attorney in the province of Alberta. This document appoints someone, like you in your mother’s case, to make financial decisions if she is unable or unwilling to make them on her own.
In other provinces, these documents have different names, such as personal directives or mandates. Regardless, the intention is generally the same.
For what it is worth, Laurel, when my own mother became unable to manage her financial affairs, my siblings and I did not add our names to her bank and investment accounts as joint account holders. We presented her Ontario power of attorney for property to the bank and were granted the authority to manage her financial affairs.
Even when my mother still had the capacity to make her own decisions, she suffered from a rare condition that caused her to lose the ability to speak. She appointed me with trading authority over her investments prior to us officially enacting her power of attorney. I used it to manage the investments in her RRIF and TFSA accounts.
Registered accounts like RRIFs and TFSAs can have named beneficiaries. They cannot be held jointly. These accounts can pass directly from a parent to a child upon presentation of a death certificate to the financial institution if the children are named as beneficiaries. The assets would not be subject to probate. That said, for reasons that go beyond the scope of this article, there may be motives to name your estate rather than specific individuals.
Non-registered accounts, like bank or taxable investment accounts, cannot generally have named beneficiaries, but there are exceptions. Guaranteed Interest Annuities (GIAs) issued by life insurance companies are like GICs but payable as a life insurance contract to beneficiaries. Some Canadian financial institutions have introduced Joint Gift of Beneficial Right of Survivorship accounts so that a parent can retain legal and beneficial ownership of an account, but gift the account directly to a successor account holder on their death.
It is important to note, Laurel, that while joint ownership may ensure an account passes directly to a survivor without delay at a bank or financial institution, it does not mean the account avoids probate.
When a parent adds a child’s name to an asset, the presumption is that this creates a resulting trust, with the asset being held beneficially in trust for the parent, and ownership remaining with the parent. This generally means the asset should be distributed based on the terms of the parent’s will, but there are potential probate, estate, tax and family law implications that can apply.
Probate is a fee payable to the provincial government to confirm that a will is valid, and to appoint the executor to administer the estate of the deceased. Probate fees vary by province. In your case, Laurel, probate fees in Alberta are as follows:
$10,000 or less: $35
$10,001 to $25,000: $135
$25,001 to $125,000: $275
$125,001 to $250,000: $400
Over $250,000: $525
Other provinces, like where I live in Ontario, have higher probate fees. But even then, the fees are just 1.5% on estates exceeding $50,000. The highest rate in the country on large estates is 1.95% in Nova Scotia for estates valued over $100,000.
There are risks to adding a child’s name to an asset. Some of these risks include:
- The child has access to those funds as a joint account holder.
- Other people may have access to or attempt to go after those funds if the child is subject to a lawsuit or gets divorced.
- If the child becomes incapacitated, disabled or dies, that child will not be able to manage the asset, whereas a power of attorney could have an alternate individual named.
- Adding a child’s name to an investment account could result in a deemed disposition and capital gains tax for the parent.
- Adding a child’s name to real estate could result in some or all of that property or another property owned by the child to no longer qualify for the tax-free principal residence exemption.
- Adding a child’s name to real estate could have land transfer tax implications.
- An asset held jointly may not be exempt from probate after all.
There are other risks, but the point is, in Alberta, you may be exposing your mother or yourself to potential consequences to avoid $525 of probate fees.
Powers of attorney, personal directives, mandates, beneficiary designations, joint ownership, Guaranteed Interest Annuities and other insurance products, gifting, joint partner trusts, alter ego trusts and other alternatives should all be considered in the context of how best to pass assets from an aging parent to a child.
Laurel, I hope my input, including my own experience with my mother, is helpful to you, and to others.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.