The perils of joint accounts


On August 17, I blogged about probate rules and probate tax. It is because of the probate tax in Ontario that many people will set up joint accounts; they are a way to allow assets to pass outside of the estate and therefore outside of probate requirements. However, joint accounts have their own perils, illustrated by two famous cases from the Supreme Court of Canada: Pecore v. Pecore and Madsen Estate v. Saylor

In Pecore, the father placed most of his assets in joint accounts with his daughter, Paula. He then prepared a will leaving specific gifts to Paula and her children, with the residue of his estate to be divided between Paula and her husband, Michael. (There was evidence that he was estranged from his other children.) After her father’s death, Paula transferred the balance in the joint accounts to herself based on a right of survivorship. Some time later, Paula and Michael divorced, and Michael claimed that the joint accounts should have been divided up along with the residue. After a long legal battle, the Supreme Court ultimately decided that the accounts belonged to Paula as the surviving account holder. In Madsen, the Court came to the opposite conclusion. In that case, the father transferred a large portion of his assets into accounts that were joint with his daughter, Patricia. He claimed all of the income from the accounts for tax purposes, and all of the income was used by him during his lifetime. On his death, half of his estate was to be divided among Patricia and her two siblings. Her siblings sued when they found out that she did not include the joint accounts in the estate assets on her application for a probate order. The court found that there was an intention for the assets to be distributed according to the estate, and ordered them to be evenly shared among the three siblings.

So what is different between these two very similar cases?

In both cases, the Court talks about a “presumption of advancement”. Basically, it reaffirmed the rule that, if someone adds another person on to an account, it will be presumed to be only for convenience unless there is clear evidence that the person intended for the new joint owner to be an actual owner of the account. For a spouse or a dependant child, this evidence will be easy to produce. For an independent adult child, it will be more difficult to prove that the parent intended for the child to be an owner of the assets. In Madsen, Patricia was independent, and all three children had a good relationship with their father. In Pecore, Paula worked in low-income jobs, cared for a quadriplegic husband, and was the only child to have maintained a relationship with her father; it was easier for the court to assume he would want to provide a greater benefit to his daughter than to his son-in-law. The lesson to take away: if you are thinking of placing assets jointly with a family member other than a spouse, make sure you talk to a professional to ensure that it will play out the way you want.