By Maya Gordon, Partner and Estate Lawyer and Case Littlewood, Student-at-Law, Reynolds Mirth Richards & Farmer LLP
“I’d like to add one of my children to my bank account—what are your thoughts?”
This a common question asked by clients who come into our office and are considering their estate plan. And the idea behind it seems simple: by adding another person to the account, they can inherit the account automatically when you die. It seems like a great idea! A simple and efficient transfer to one’s child or spouse, no need for a Will or a Grant of Probate, and immediate access to the funds right when a loved one needs them.
But the legal implications are not always simple.
When someone adds their spouse (either married or common law) to an account, the account will typically flow to the survivor. Called a “right of survivorship”, this is a presumption in law, which means that although this is the presumption, it can be disproven on specific facts.
However, if you add an adult child to an account gratuitously (for no value), the law makes the opposite assumption: that it is not a gift, and that the account will flow back into your estate after you die. Therefore, more planning and thought needs to go into when a parent is considering adding an adult child to a joint account, and if they do, their intention needs to be carefully documented.
There are also pitfalls to be aware of. For example, as soon as you add another owner to an account, their ownership does not start upon death, it starts now. This means that they can remove funds, transfer them, or borrow against them. In addition, if your child has a judgment against them (for example, due to a car accident or a divorce) or goes bankrupt, the joint account could be available to creditors since it is, partly, “their account”. Adding children can also trigger a tax event, since you may be “disposing” of it by adding another owner. Plus, removing your child as a joint account holder can be extremely difficult to do.
Often, the reason people want to add a joint owner to an account is for efficiency—they want their loved one to have quick access to money to pay debts or for a funeral. However, most Canadian banks will allow the Executor of an estate to pay these types of debts from a deceased’s accounts, so this is rarely a concern. Another reason would be to “avoid Probate”. Currently in Alberta, it takes less than a month to get a Grant of Probate for an estate with a Will and an Albertan Executor, so the Executor would have ready access to the funds more quickly than you may have thought.
Asking a question about estate planning is a great thing—it shows that you’re thinking about your loved ones and trying to make things simple for them in the event of your death. However, when it comes to joint accounts, always talk to an experienced estate lawyer and your accountant to ensure that you make the right decisions.
This article is for information only. It does not constitute legal advice and should not be construed as such.
