Tuesday, July 25, 2006
Joint accounts may not be your best option
Recently the use of Joint accounts - in particular joint bank accounts - has increased as a planning tool. Banks and others are suggesting to elderly and other clients that they consider placing ownership of their accounts in joint tenancy with a child or another person.The main reason seems to be to avoid Estate Administration Tax on the death of the owner of the property.
We should all appreciate that Estate Administration Tax(EAT)in Ontario amounts to a maximum of 1.5% of the value of the property. In my view, it may be preferable to keep your property in your own name and let your estate pay the EAT after you pass away. At least you are not giving up control of your property.
Placing property in joint tenancy is sometimes a reasonable planning tool - for instance when there is only one child and that child is the sole heir, and the death of the parent is imminent. However, even in this circumstance, the most important point to remember is that the only child must be trustworthy. If not, then we should all think twice about transferring the property to joint names.
All too often, positions of trust or privilege are abused. Unfortunately, this is increasingly so with respect to joint accounts.
There have been circumstances where the donee abuses his or her "ownership" of the account and takes part or all of the money, leaving little or nothing for the donor.
Conflict often arises when there are several child beneficiaries, but the main asset of the estate is transferred during the lifetime of the testator to only one child. On the death of the testator there is now much litigation about the "purpose' of the transfer. What is a gift? Was it merely an estate planning tool to avoid paying Estate Admininstration Tax on the death of the Testator. Did the testator intend that only one child have the benefit of that particular asset? Or, was there an expectation that all of the children would benefit?
A simple transfer such as this will result in discord in the family and probably in litigation among the children after the death of the parent - something which the Testator would not want.
In addition, by transferring capital property, you may unwittingly trigger a capital gain, which might result in tax payable immediately. Prior to any such transfer, we must all take some proper tax advise.
A seemingly simple transfer can end up in causing turmoil. Obtain the advice of a solicitor prior to making such a decision.
Remember, when you transfer your property to joint accounts, on the face of the transfer - you have given a susbtantial interest in the property to the other person. If it is your intention for that person only to have a trust interest, then you should consider whether a trust document is necessary.
We should all appreciate that Estate Administration Tax(EAT)in Ontario amounts to a maximum of 1.5% of the value of the property. In my view, it may be preferable to keep your property in your own name and let your estate pay the EAT after you pass away. At least you are not giving up control of your property.
Placing property in joint tenancy is sometimes a reasonable planning tool - for instance when there is only one child and that child is the sole heir, and the death of the parent is imminent. However, even in this circumstance, the most important point to remember is that the only child must be trustworthy. If not, then we should all think twice about transferring the property to joint names.
All too often, positions of trust or privilege are abused. Unfortunately, this is increasingly so with respect to joint accounts.
There have been circumstances where the donee abuses his or her "ownership" of the account and takes part or all of the money, leaving little or nothing for the donor.
Conflict often arises when there are several child beneficiaries, but the main asset of the estate is transferred during the lifetime of the testator to only one child. On the death of the testator there is now much litigation about the "purpose' of the transfer. What is a gift? Was it merely an estate planning tool to avoid paying Estate Admininstration Tax on the death of the Testator. Did the testator intend that only one child have the benefit of that particular asset? Or, was there an expectation that all of the children would benefit?
A simple transfer such as this will result in discord in the family and probably in litigation among the children after the death of the parent - something which the Testator would not want.
In addition, by transferring capital property, you may unwittingly trigger a capital gain, which might result in tax payable immediately. Prior to any such transfer, we must all take some proper tax advise.
A seemingly simple transfer can end up in causing turmoil. Obtain the advice of a solicitor prior to making such a decision.
Remember, when you transfer your property to joint accounts, on the face of the transfer - you have given a susbtantial interest in the property to the other person. If it is your intention for that person only to have a trust interest, then you should consider whether a trust document is necessary.
posted by Robert at 2:25 PM
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