It is very common for individuals, as part of their estate plan, to place property such as bank accounts, investment certificates and homes on joint account or joint tenancy with right of survivorship with another. Often the person who shares ownership of the asset is the child of the owner of the asset. This is commonly done to avoid probate tax and to allow for easy transfer of assets on death.
1.Problems with Joint Ownership
There are, however, many reasons why very careful consideration should be given to this type of planning and why it should not be done. For example, once a child is indicated as an owner of the asset, if that child is successfully sued by a third party, the asset could be seized by the creditor. A claim could also be made against the asset or the value of the asset by the child’s spouse if he or she separates or divorces. Also, the original owner of the asset loses control over that asset; the owner cannot sell, transfer or cash in the asset (in the case of a savings certificate) without the agreement of the other joint owner. The transfer itself could also trigger capital gains tax which would be payable by the Transferor.
2.What is your “true” intention
In addition to these concerns, we are now seeing many cases where litigation is occurring after the owner’s death because there is uncertainty as to whether the owner of the asset truly intended to create a joint tenancy.
Generally, when an asset is owned jointly with another individual, upon the death of one of the joint owners, the asset automatically becomes the property of the surviving joint owner. The asset does not form part of the deceased’s estate to be dealt with under his or her Will.
The Courts in dealing with this issue, however, have developed what is known as “the presumption of resulting trust” particularly when assets are held jointly by parents and a child
The presumption is that the individual (the child) who shares ownership of the joint asset with the original owner is really holding it in trust for the original owner and does not receive the asset on the original owner’s death. The asset must be held in trust for the estate to be dealt with under the owner’s Will. If the surviving joint owner wants to retain the asset for himself, he must “rebut” the presumption and prove that the deceased really intended him to receive the asset.
Oftentimes, the problems caused by transferring assets into joint names are far greater (and more costly) than any potential savings to your estate of probate tax. Before considering the transfer of any of your assets into joint names with another individual, you should review your circumstances and your estate plan with your lawyer.
This article is intended for general information purposes only and is not intended to provide legal advice. Readers with concerns about how this affects particular situations or transactions should obtain the independent review and advice of legal counsel.