Some folks seem to think that once their spouse has passed away they should now add their kids as joint owners to their investments to avoid probate fees and the estate, this might not be the wisest move.
Firstly, this can only be a consideration for non- registered or cash accounts as registered accounts do not allow for multiple owners.
With registered accounts you have the ability to designate a beneficiary thus avoiding the estate and probate. While one might think that this would be a great idea to avoid probate fees for non-registered accounts it is fraught with the following pitfalls.
Tax — A transfer of property to someone other than your spouse or common-law partner may trigger immediate capitals gains tax.
Loss of control — A transfer of property generally means not only a loss of control over the property but quite often the inability to make decisions related to the property without the consent of the joint owner.
Creditors — Assets held in joint name may form part of creditor proceedings if one of the joint account holders becomes insolvent or declares bankruptcy.
Conflict — A potential for conflict exists upon the death of a parent, where only one child is registered as a joint owner.
The child becomes the sole owner of the account, which may lead to dispute with other siblings or family members who believe that they should have a claim on the account.
Marriage breakdown — Division may also occur upon breakdown of marriage or common-law partnership of the child and his or her spouse or common-law partner.
Tax exemption loss — If personal residences are involved, each co-owner of the property may jeopardize his or her access to the principal residence exemption.
In summary, whether or not joint accounts are advisable for estate planning reasons will depend on your desire to focus on saving on probate taxes or deferring income taxes.
Remember that a transfer into joint names generally results in a loss of control, which may not be the desired intent.
Remember to always consult your advisor before taking any action.
Stuart Kirk is a Wealth Advisor with Precision Wealth Management Ltd and an Investment Funds Advisor with Manulife Securities Investment Services Inc. The opinions expressed are those of the author and may not necessarily reflect those of Precision Wealth Management Ltd or Manulife Securities Investment Services Inc.
For comments or questions Stuart can be reached at stuart@precisionwealth.ca or 250-954-0247. Website www.precisionwealth.ca
