So you want to make your bank account joint with another person. Maybe your banker or a well-meaning friend has told you this is a good idea. Maybe they’re right, but maybe they’re wrong. Let’s discuss.
Why would you consider adding someone to your bank account? Some of the reasons may be convenience, estate planning, taxes, or to give a gift.
Let me break down some of the concerns and assumptions I often hear from clients:
Convenience: The joint owner will be able to handle my financial affairs in the event I cannot.
Estate planning: When I die, the joint owner may easily pay for my funeral with the proceeds from this joint account. My beneficiaries will be able to receive the funds I wish them to have from this account quickly and without probate.
Probate taxes: Joint accounts will reduce my probate fees (estate administration tax).
Gift: I want my joint owner to get the money when I die but not until then.
I am certain that these people are motivated by the best of intentions, but may not have considered the effect of what they intended to do, or already have done.
It may be convenient to have a joint owner but there is no duty to account to the owner. The new joint owner may take the money and use it as their own. This problem can be avoided with a properly prepared power of attorney for property. In essence, the person you appoint as an attorney is a trustee under Ontario law and must act in your best interests.
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By adding someone to a bank account that person is now an equal owner and has full legal access to the money. This money won’t necessarily go to other beneficiaries. Is this your intention? The addition of another person to a bank account is generally regarded by the bank as equal ownership. The joint owner can take part or all of the money at any time, even before your death.
Everyone wants to avoid paying probate fees! Will placing bank accounts in joint ownership with someone else accomplish this? Think carefully!. Ontario law presumes that the added owner, except spouses, holds the money in trust for the original owner unless there is evidence to the contrary. This means that, although most banks will give the money to the added owner, without the additional evidence of ownership the value of the bank account is part of the estate.
Probate fees are only payable on application to the Estates court. If no application is made then no probate fees are payable. However, if one asset requires probate then all assets of the deceased must be included. This usually means the bank account and therefore no probate fees are saved. Mission unaccomplished! Just because an account is a joint account does not mean that probate fees are not owing.
If by adding a name the account holder is saying “all of this money is now ours”. This intention needs to be clear as well. This can be accomplished by making a gift letter at the same time as creating the joint account to confirm ownership by everyone and that they can access it as they please in as much as they please. The value of the account would likely not be included in the assets of the account holder when they died.
If the account holder wanted to own the money until their death the added person would not be an owner until the account holder’s death. The value of the account would be included in the assets of the account holder when they died. This needs to be made clear to the other person.
Joint bank accounts are a major issue in estate planning and estate administration and while easily created numerous problems can also be created. Especially since banks are willing to create joint accounts without much thought or explanation as to their significance.
To remove the name of an added joint owner is sometimes difficult. Banks generally require the consent of the person you wish to remove. they might not agree!
This article is not intended to be relied upon as legal advice but only to give the reader an overview of the law in Ontario applicable to powers of attorney for property and personal care. You need to consult your legal representative to determine the best procedure in your particular circumstances.
