Lots of people have joint bank accounts. You may not understand the dangers these accounts may bring. You may believe joint bank accounts are trouble-free. They can, after all, avoid probate and headaches for loved ones.
But the reverse can also happen. Joint accounts can bring heartbreaking nightmares.
Married people can benefit from joint accounts. How? The surviving joint owner inherits the account without the need for a will. Joint banks accounts can transfer a person’s money without probate. You can save time and money when you do this with your spouse. However, when the account is held with a person who is not a spouse, the benefits are not so obvious.
Here are some cautions about joint bank accounts. The courts can investigate a gratuitous transfer of money to anyone. The court can question what your intent was when you opened the joint account. Did you intend to make a gift of the money? Or are you expecting the account to be part of your estate? A transfer of a joint account into your spouse’s name does not raise such questions.
Art’s Story about Joint Accounts
Look at Art. He placed his daughter Jennifer on a joint bank account.
Art had revised his estate planning after his wife died. He and his wife had owned their house and bank accounts jointly. When Art’s wife died, he did not have to probate her will. Art inherited all their joint assets.
Art’s daughter, Jennifer, lived close by. Art’s son, Bill, lived in another town. Art decided to put Jennifer’s name on his bank accounts. He checked a box on the bank form. It gave Jennifer rights of survivorship. Jennifer was a joint owner with rights of survivorship. Art figured this would save some probate taxes.
When Art died, his son, Bill, claimed the joint account was set up for convenience only. Art always told Bill he would treat his two children equally. Art mentioned this 50/50 split to his lawyer when he signed his will. The lawyer did not know about the joint bank account.
When Art died, there was $200,000 in the account. Jennifer now claimed the entire joint bank account was a gift to her.
Does Jennifer have to share the account with her brother? Who would you believe – Jennifer or Bill?
Your children can end up in court to fighting to get a judge to agree with them. Courts consider various factors if a gratuitous transfer is made to a non-spouse.
6 Factors Courts Consider with Joint Accounts
1. Evidence of Intent – Art intended to make a gift of the Joint Bank Account when the Joint Bank Account was opened because:
(a) Art understood how joint assets with a right of survivorship would operate on his death based on history with his wife’s estate and legal advice.
(b) Art transferred his bank accounts into the Joint Bank Account with a right of survivorship knowing the consequences. Money in the Joint Bank Account would not be part of his estate on his death. The money in the Joint Bank Account would belong to Jennifer as joint owner.
2. Bank Documents – clearly set out that the Joint Bank Account was subject to a right of survivorship.
3. Control and Use of the Funds – Art was the only person using the Joint Bank Account but his daughter was told she could withdraw funds if she wanted. Art was told his money was subject to creditor risks if his daughter divorced or went bankrupt.
4. Granting of Power of Attorney – Art gave his daughter a Power of Attorney for personal care and for property. This would have allowed Art’s money (including bank accounts) to be managed. Thus, the joint account was not opened to allow Jennifer to manage Art’s financial affairs.
5. Tax Treatments – Art included in his tax returns all the interest from the Joint Bank Accounts.
6. No evidence of any reservation of interest by Art – Art never intended Jennifer to hold money in the Joint Bank Account “in trust” for himself while he lived. He did not intend the account for the benefit of his estate when he died. All evidence proves the opposite. Art intended to “gift” the legal and beneficial interest in the Joint Bank Account.
As far as Art intended, the “gift” was made when the Joint Bank Account was opened.
Arthur had given his entire interest, legal and beneficial, when the Joint Account was opened. There was no expectation by Art that Jennifer would share the account.
The court was satisfied Art intended to gift all legal and beneficial interest to Jennifer.
Joint Accounts in Your Estate Plan
Joint ownership, even with family, can create legal problems. Before you transfer your bank account into joint ownership with survivorship rights, get professional advice. Make sure your will reflects the joint account arrangement.
Owning assets jointly with spouses does reduce probate costs. It is a valuable estate planning technique.
If all your assets are jointly owned, it may be impossible to treat your beneficiaries equally.
Art had not considered how Bill would be shortchanged. The result is he did not divide his estate equally between the two children. They also inherited a legacy of bitterness and unnecessary legal costs.
Always discuss with your lawyer the advantages and disadvantages of having jointly owned assets. Consider the risks carefully. The survivor could still end up in a court fight.
About Ed Olkovich
Edward Olkovich (BA, LLB, TEP, and C.S.) is an Ontario lawyer, nationally recognized author and estate expert. He is a Toronto-based Certified Specialist in Estates and Trusts Law. Ed’s law firm website is MrWills.com © 2014