Avoid sibling rivalry over jointly held property

Many parents are choosing to hold property jointly with one or more children with a right of survivorship. The goal is to reduce probate taxes and facilitate estate administration. If the parent dies first, the child or children will own the property, without exposing that jointly held property to probate taxes or to the probate process.

Some parents arrange for property to be owned jointly with only one of several of their children. Most assuredly, this is a recipe for disaster. After the parent’s death, sibling disputes frequently arise as to who was intended to benefit from that joint ownership.

The child who was placed on title will typically assert that he or she is the sole owner of the property that was formerly jointly held with the deceased parent, ostensibly in accordance with the parent’s stated intention. To the contrary, the other sibling(s) will assert, the change of title was intended to avoid probate taxes or was implemented purely as a matter of convenience – with the result that the titled sibling holds legal title only and is entitled to an equal fractional interest in the property with the other siblings.

The problem almost invariably will stem from the parent’s failure to set out in writing what his or her intention was at the time the property was transferred to joint ownership. In such a vacuum, it will fall to a judge, after bitterly contested and expensive litigation, to ascertain what that unstated intention must have been.

When it comes to bank accounts and investment accounts, the Supreme Court of Canada has recently expanded – and complicated – the possible outcomes. In Pecore v. Pecore, the top court in the land held that in making such an account joint with a son or daughter, a parent may have transferred nothing more than an entitlement to whatever is left in the account when the parent dies. (In fact, if the parent were so minded, he or she could see that all of the money or investments in the account were withdrawn or transferred to another account, leaving the child with a worthless entitlement on the parent’s death.)

In light of the Pecore decision, a parent who adds a child to his or her bank or investment account has effected one of three outcomes:

• the parent has made a current gift to the child, who is now an equal beneficial owner with the parent – and, assuming the parent dies first, will become the sole owner of the property;
• the child is holding the fractional interest in the account as a bare trustee for the parent; or
• the parent has conveyed to the child the right of survivorship in the account, while maintaining full control over the account while alive.

Should the parent predecease the child, only scenarios 1 and 3 will result in the date-of-death value of the account being excluded from the parent’s estate.

According to the Supreme Court of Canada, everything depends on the parent’s intention in putting property into joint ownership. The wisest counsel that a financial advisor can give to the parent? Set out in writing those intentions at the time the property is transferred to joint ownership. And better still, have the child provide a written acknowledgment as to the nature of his or her ownership and entitlement in the property.

Barry S. Corbin, B.Sc., M.Sc., LL.B. is a lawyer with Corbin Estates Law.