The use of joint accounts as an estate planning tool continues to gain in popularity. For example, parents may create joint bank accounts with their adult children, with the intention that the children receive the remaining balance in the joint account as a “gift” by right of survivorship upon the parent’s death.
In theory, joint accounts are easy and convenient to set up, and allow you to minimize estate administration tax because the jointly-held assets pass outside the estate. However, in practice, the use of joint accounts may create unintended results.
In Pecore v Pecore, 2007 SCC 17, the Supreme Court of Canada confirmed that there is a presumption of resulting trust when a parent makes a gratuitous transfer of property into a joint account with an adult child. In other words, the transferee will be found to be holding the assets in trust for the benefit of the estate unless he or she can rebut the presumption by proving that the transferor intended to make a gift.
Over the next two days, I will highlight two recent decisions where the use of joint bank accounts by the deceased became a litigated issue between the parties.
In Johnson v Johnson Estate, 2015 ONSC 3765, the deceased was survived by one son (“Wayne”). The deceased’s other son predeceased her, but left a son (“Michael”). The deceased died without a will, and her grandson Michael claimed that he was entitled half of the value of the estate in accordance with the rules of intestacy. However, the deceased’s son Wayne took the position that Michael was not entitled to the monies in the bank accounts and investment accounts that Wayne held jointly with the deceased prior to her death.
Wayne argued that the joint accounts passed to him by right of survivorship, and that there was sufficient evidence to rebut the presumption of a resulting trust. He claimed that the deceased was using the joint accounts as an estate planning tool and wanted the accounts to pass to him without forming part of the estate. Michael maintained that Wayne had not rebutted the presumption.
The Honourable Madam Justice Woollcombe considered the evidence to determine if the presumption had been rebutted on a balance of probabilities. Justice Woollcombe held that there was insufficient evidence to suggest that the deceased intended to make an outright gift of the jointly-held accounts to her son upon her death. The bank documents did not show the deceased’s intention behind opening the joint accounts, and there was no explanation for why the deceased chose not to similarly hold her home in joint ownership with her son. In addition, there were no testamentary documents or tax documents to help assess the deceased’s intention.
In the result, Justice Woollcombe held that the funds in the joint bank accounts were held on a resulting trust for the deceased’s estate and would be distributed in accordance with the rules of intestacy. Wayne and Michael were each entitled to half of the total value of the deceased’s estate.
The Johnson decision is a strong reminder for individuals who are using joint accounts as an estate planning tool to ensure that their intentions are clearly ascertainable. In the absence of clear evidence, a joint account may unintentionally fall into the deceased’s estate. In addition, confusion regarding a deceased’s intentions can lead to protracted litigation between beneficiaries – likely a far greater expense than the potential savings on probate taxes!
Thank you for reading.
Umair Abdul Qadir