Joint Ownership with Your Adult Child: Be Sure to Document Your Intention

It has become increasingly common for individuals to hold their assets jointly with their adult children.  Some may do so as an estate planning strategy, since it will ensure that such assets pass directly to the surviving joint owner without being subject to estate administration tax (or, as they are commonly known, “probate fees”).  Others may simply want to facilitate the administration of their assets by enabling an adult child to access and deal with them on their behalf.  Whatever the reason, one should carefully consider various potential tax and legal consequences that could result from placing his or her assets in joint name with someone other than his or her spouse.

In particular, one must make sure to clearly document his or her intention in transferring assets into joint ownership with an adult child—that is, whether: 1) one intends to gift such assets to that child for that child’s own use, or 2) one simply wants that child to hold the assets on his or her behalf for such purposes as managing them and/or avoiding probate fees, in which case the assets would belong to his or her estate, not the child, after he or she passes away. 

In fact, following the seminal Supreme Court of Canada decision in Pecore v. Pecore, 2007 SCC 17, when a property is held jointly between a parent and an adult child (as opposed to a spouse or a minor child) with no evidence of the parent’s intention to gift that property, the law presumes that the adult child is holding the property in trust for the aging parent to facilitate the free and efficient management of the parent’s affairs.  In other words, the property would be deemed to belong to the parent’s estate upon the death of the parent.

Accordingly, if one passes away without leaving any documentary evidence of his or her intention with respect to any jointly-held assets, such assets can potentially be subject to disputes between the adult child who has now become the sole owner of the assets and the other siblings or family members who believe that such assets should be distributed in accordance with the deceased parent’s Will.  This could result in costly litigation and strained—even permanently scarred—family relationships.

The evidence of a deceased parent’s intention to gift, as have been considered by the Courts, may include the following (it should be noted that none of the following will necessarily be considered as conclusive evidence by itself, but rather all of them will be considered as a whole):

• Wording of any banking documents pertaining to the transfer into joint names
  • Do such documents show that the deceased parent clearly understood and intended the implications of the transfer (i.e. right of survivorship) when adding the adult child’s name?
• Control and use of the joint assets
  • Were the assets exclusively or primarily controlled and used by the adult child for his or her own benefit following the transfer?
• Granting of any power of attorney to the adult child
  • Did the deceased parent appoint the adult child as his or her attorney in addition to making that child a joint owner of his or her assets?
• Tax treatment of the joint assets
  • Had the adult child been primarily responsible for paying any tax associated with the assets?
• Terms of the Will
  • Does the deceased parent’s Will specifically stipulate his or her intention to gift the joint assets to the adult child?
• Evidence from relevant third parties such as investment advisors, bank employees and lawyers
  • Do they remember and/or have any notes pertaining to any discussions they may have had with the deceased parent about his or her intention to gift at the time of the transfer?

Simply put, it is imperative for anyone who is considering placing assets into joint name with an adult child—especially when there are other children—to obtain legal advice and to leave proper documentation of his or her intention vis-à-vis such assets—in other words, make it known.  This will ensure that one’s wishes are carried out as intended after he or she has passed away and will ultimately protect the estate and family from bitter litigation.