What to consider when assets in joint accounts are meant for multiple beneficiaries

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People fixated with not paying probate fees one day will typically hold some of their assets, like a bank account, jointly with another family member.

While doing so may save on fees, what often follows is confusion and likely animosity among family members because it triggers questions on who was really meant to end up owning the asset when a joint accountholder dies, says Michelle Connolly, senior vice-president, advanced tax and estate planning, at Wellington-Altus Private Wealth Inc. in Toronto.

Was the asset truly intended as a gift to the surviving heir listed on the joint account or was it meant to form part of the overall estate with multiple beneficiaries?

“People want to make life simple but then don’t have a full appreciation of the overall impact,” Ms. Connolly says of the estate fights decisions like this can cause.

She notes that probate fees generally run up to 1.695 per cent of an estate depending on the province – modest amounts not worth the possible family infighting that can ensue. “If a case does go to court, say goodbye to those probate fee savings.”

Ms. Connolly notes joint accounts should only be used in two circumstances – between spouses/common-law partners and a surviving parent with an only child.

“More often than not, when you look at litigation, it’s often a misunderstanding between siblings,” she says.

And joint accounts aren’t without their issues. While the primary account holder may have wanted to just avoid future probate fees, the other joint account holder, suddenly having full access to the assets, may go on a spending spree, depleting the assets, Ms. Connolly says.

Documenting intentions

In the case of any gifts given in the person’s lifetime or in the will, clients should write out their intentions in a separate statement.

“If mom’s intention is, in fact, to transfer this asset to the designated child, there’s no problem if it’s documented and communicated clearly to the other children,” she says. “But more often than not, it’s not.”

Julia Chung, chief executive officer, partner and senior financial planner at Spring Planning Inc. in Vancouver, has noticed more parents giving early inheritances among her clients. In a nutshell, she wants to know the end goal of the gift, who knows about it, and who understands the intention of the gift.

“We talk all the way through,” she says. “Then, we have a family meeting because everyone forgets after we’ve had those conversations. And then we need to write it down.”

During the family meeting, Ms. Chung also determines who participated in the discussion beyond the people benefiting from the gift.

“Have we talked to the other players who might be affected by this decision to make a gift?” she says.

Working with other experts

Ms. Chung says she likes to have a conversation with “the kids who are involved, the kids who are not involved, [and] the professionals who might be drawing up the documents” to make sure everybody understands the objective.

“Professionals can help you have those nuanced conversations in a more objective way and make sure everyone feels like they understand what’s happening,” she says.

For example, she notes if a parent wants to provide a $100,000 gift to a child as a down payment for a house, does the parent expect something in return? In the future, the parent may require financial assistance with covering eldercare costs.

These are issues that few clients think about, Ms. Chung says, as “some people never believe they will run out of money. We’re never going to die, we’re never going to be incapable, but it does happen sometimes.”

Ms. Connolly adds that a client’s wealth, tax and legal advisors likely have better solutions to execute what the client desires, they just need to be asked and kept informed.

“Often, the client doesn’t tell us, ask or understand the implications of their decision,” she says. “We have the tools, we just have to be aware.”

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