Estate in Joint Names – Good or Bad?

By Martin Rumack

March 27, 2018

Estate in Joint Names, GST, HST, Income Tax, Land Transfer Taxes

People are always looking to minimize all types of taxes — from Income Tax, to Land Transfer Taxes, Retail Sales Tax, Corporate Taxes, GST and HST, Estate Taxes, etc. As a lawyer, I always recommend that my clients try to minimize taxes but certainly NOT TO EVADE paying taxes which are due. Look at the can of worms the Panama Papers and now the Paradise Papers have uncovered. Speak to any of these individuals or corporations who have been caught!

In my Estate Planning practice, I am always asked about how to minimize or eliminate related taxes. An increasingly popular method in Estate Planning is where an individual registers various types of assets (e.g. house, condominium, cottage, chalet, timeshare, commercial property, shares of a Company, bank accounts, mutual funds etc.) in his or her name on title, together with the name of a spouse, children, or other beneficiary.

This however can result in various types of problems, for example:

A. The person who is trying to minimize their estate taxes, capital gains, and income tax may be taken advantage of by the person they have added on title to real estate assets, bank accounts, etc.;

B. If only one of the person’s children is added on title to the exclusion of others, once the person passes away those excluded children may feel jealous, suspicious, or even question the parent’s competency or his or her real intentions;

C. If the person adds an adult child to the title of a property, a bank account, a mutual fund, etc., it may be put at risk if the child is sued and has a JUDGMENT registered against his or her name. Or if the child added to title subsequently goes through a divorce from his or her spouse, the property (be it real estate, a bank account, an investment portfolio, shares of a Company), can become part of their net family property of the adult child, and be subject;

D. There may be a claim by the adult child’s spouse as part of the Divorce equalization process.

These are merely a few examples of what can go wrong, and how a simple attempt to avoid taxes may give rise to serious monetary or legal issues, health problems, and psychological issues resulting from stress. For this reason, whenever one of my Estate Planning clients wants to use this method to minimize or possibly eliminate probate fees and estate taxes, I always discuss the pros and cons of adding a second party on title to the asset. Obviously, different considerations apply when the second person is a spouse; but even in that scenario there where be other factors if this is a second, third or fourth marriage. There are other issues I discuss too — in other words, my job is to play “Devil’s Advocate”!

While conceptually there is nothing wrong in having your assets registered in joint names in order to save some money, make sure you discuss all the pros and cons with your lawyer, accountant, and financial planner. You may be better off simply having your Estate pay the taxes that result from owning all your assets in your name alone at the time of death, rather than incur some of the risk and attract some of the problems described above.

Depending on the particular situation, I sometimes recommend that clients discuss at least their general Estate plan – if not the specifics of the plan – with their children and beneficiaries. That way, there will be no shock effect when the Will is read to them!

If the goal is essentially to have a child assist their parent with financial matters or dealing with other assets (and assuming there are no trust issues to worry about), the preparation of a Power of Attorney for Property may be a more practical solution. While there will still be probate fees and other taxes to be paid on death, hopefully it will avoid litigation between beneficiaries, or between the beneficiaries and non-beneficiaries which I can guarantee will be a lot more costly!

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