Joint accounts help bypass probate fees

Investment and bank accounts owned by more than one person are often referred to as “joint accounts.”  They allow two or more people to have authority over the transactions and management of a single account including withdrawals.

Individuals considering transferring assets into joint names should first obtain professional advice.  There are some potential benefits for transferring accounts into joint ownership in certain situations.  One potential benefit is the ability to bypass probate fees.

What is Probate?

Probate is an administrative procedure which involves the court validating a deceased’s will and confirming the appointment of an executor.   It is important to note that only those assets that are distributed through the will are subject to probate.  Joint accounts generally bypass the will as the ownership of the account transfers to the surviving joint individual(s).

Probate Fees

Every province has a different fee schedule relating to probate.  In British Columbia, the fee schedule is as follows:

  • $0 for estates under $10,000
  • $208 for estates between $10,001 and $25,000
  • $6 for every $1,000 or part thereof for which the estate value exceeds $25,000 but is not more than $50,000
  • $14 for every $1,000 or part thereof in excess of $50,000

The fee is essentially $358 for a $50,000 estate and greater amounts are charged 1.4 per cent.   If the gross value of an estate is $200,000 then the probate fees would be calculated as follows:

First $50,000                       $     358
$150,000 x 1.4 per cent =   2,100
 Total                                        $  2,458

The following highlights two scenarios where a joint account may be considered.  These illustrations do not discuss the potential tax consequences.

Joint With Spouse

Mr. and Mrs. Wilson have been married for 28 years and each have non-registered investment accounts that are solely in their own names.  Neither of them had been married before or had any children.  Their respective wills name each other the beneficiary of their assets.  During the estate planning process and review of their wills we explained to them that if either of them were to pass away that the non-registered account of the deceased may be subject to probate fees.

We then explained a type of account referred to as “Joint with Right of Survivorship” often abbreviated on investment statements as JTWRS.   Both Mr. and Mrs. Wilson could establish JTWRS accounts while maintaining beneficial ownership of their investments for income tax reporting purposes.   One benefit for establishing JTWRS accounts for the Wilson family is that upon either of their deaths the surviving spouse will be the sole owner of the investment account.  As the account is already in the surviving spouse’s name it avoids probate.  Mr. and Mrs. Wilson also wanted each other to have trading authority on their respective accounts for convenience or in the event of their incapacitation.  The JTWRS would enable them to conduct investment transactions on either of their accounts as required.  In our opinion it is beneficial for both Mr. and Mrs. Wilson to establish JTWRS accounts.

Joint With Adult Child

Mr. Sharp has an investment account which is currently in his name.  He feels that he can reduce probate and administration fees by adding his only adult son as joint owner on his investment account.

Extra care should be taken before establishing a joint account with an adult child.  Prior to establishing a joint account it is important to gather information about Mr. Sharp and his son.  Mr. Sharp should consider both the potential advantages and disadvantages.  The following are some typical risks associated with joint investment accounts:

  • Relinquishing some control as the joint owner now has signing authority on the account and could abuse their authority
  • Exposure to lawsuits or creditor claims
  • Subject to division of matrimonial property

Employed in a risky profession Mr. Sharp’s son was also experiencing marital difficulties.  After careful consideration we concluded that the potential benefits did not outweigh the risks.  We also recommended that while not appropriate at the time it may make sense in the future or if circumstances change.

The above are two common scenarios highlighting joint accounts.  Individuals with more than one adult child should certainly seek professional advice before establishing joint accounts.  Listing all adult children joint on a bank or investment account opens the account to the associated risks noted above.  If you have more than one child and list only one of them jointly on an investment/bank account then this could lead to additional problems.

Recent court cases have dealt with these issues and should be considered essential reading for anyone considering a joint account.  These cases highlight the importance of documenting your intentions with respect to joint assets and the remainder of one’s estate.  We recommend that individuals meet with their professional advisors to understand the potential tax consequences and risks of putting assets in joint names.

Options to consider about securities certificates

Registering your investments

Investments and shares generally need to be registered in either the name of their beneficial owner or registered under the name of a nominee.  Most new investment accounts that are being opened today have the individual securities being registered in nominee name.

Registered In Client Name

More common in the past, investors had investments registered in their own name. Many investors today still have share certificates in their name either from recent transactions or holding certificates they acquired in the past.  Client requests to receive the physical share certificate are becoming less common.  Such requests generally result in an administration charge of approximately $35 per share certificate.  Holders of share certificates not only have to monitor the quality of their investments but now have the added responsibility of securing their investments as well.

Some investors may feel that holding the share certificate is more tangible.  Share certificates are generally decorated with intricate artwork which is why collectors of defunct stock certificates tend to hang on to them.  When investments are registered in client name the dividend and interest cheques are mailed directly to the registered owner. As an investor registering in client name, you have more to deal with in regards to the administration of holding, buying and selling the shares.

What has changed?

Life has become more complicated.  Capital markets have expanded.  Fortunately, computers have made the tasks of shareholder registry and transfers more efficient.  In addition, financial institutions provide a nominee service that also assists in expediting transactions.

Registered In Nominee Name

The majority of investors today are registering their securities in nominee name.  This essentially means that the securities in your investment account are not registered in your name but in the firm’s name or the name of another person or company holding the securities on your behalf.  The issuers of the securities may not know your identity (beneficial owner) as your account is in nominee name.  You may choose whether you object to or would rather not disclose your personal information as beneficial owner to the issuers of the securities.   In addition, securities law permits you to decide if you would like to receive security holder material such as annual reports and financial statements.  If you object to the disclosure of your personal information and still wish to receive security holder material there may be costs associated for the financial institution to send you this information.

Nominee accounts take the majority of the administration out of your hands.  Although your securities may be registered in the financial institution’s name as nominee, you maintain beneficial ownership.  The nominee generally may not act unless instructed by you.

The following are some of the benefits of registering your securities in nominee name:

  • Interest and dividends on your securities are paid into your investment account versus having cheques mailed to you for each security you own
  • Online access listing your investments
  • Monthly transaction histories and statements enable you to keep track of your investment and better monitor their value
  • Flexibility to sell a partial position or to transfer a security in-kind within investment accounts
  • You will receive consolidated tax slips for each non-registered investment account each year
  • Efficient management of cash flow with all incoming income deposited into your account; the ability to customize outgoing payments, most of which may be automated
  • Flexibility with respect to adding savings into the investment account
  • Efficient settlement occurring normally within three days if held in nominee name with minimal paperwork
  • Timely notification and advice with corporate actions and reorganizations such as rights issues, takeover offers, conversions of subscription rights, etc.
  • Positions held in nominee name through a financial institution help to create a more organized estate

10 Questions to Consider

Individuals with physical stock certificates should consider the following:

  1. What are the benefits for holding your individual share certificates in your name versus nominee name?
  2. What happens if your share certificates are lost or stolen?
  3. Do you know how to transfer your share certificates to another individual?
  4. Do you feel the executor of your estate will be able to find all of your share certificates?
  5. Do you have old share certificates that are defunct that you are still holding onto?
  6. Do you have share certificates that you are unsure of their value?
  7. Are you aware of the added administrative burden your executor may encounter by having share certificates registered in your name?
  8. Are you aware that transfer agents may charge fees to your estate even when proper documentation is provided?
  9. When do you plan to dispose of your shares?
  10. How did you plan to dispose of your shares?

The answers to the above questions may show investors that there are few reasons to hold investments in their own name.  You will find that the costs to your estate may be significant.  If the costs are not a concern then consider the longer delays and greater paperwork that you are essentially asking your executor to do for you.  Registering your investments in nominee name ensures completeness, ease of administration and less overall risk of something being overlooked.

Estate Planning Tip

A basic estate planning measure that we recommend for individuals with share certificates is to open an investment account and have them registered in nominee name.  This will ensure that your investments are fully accounted for and safeguarded.  At the same time you are reducing estate costs and saving the executor you have appointed a lot of paperwork.

The benefits of holding investments in nominee name are many, especially when it comes to estate planning.  For some, it may be more important to consider the consequences of not registering your securities in nominee name.  We recommend that if you have share certificates registered in your name that you meet with a financial advisor to determine if the certificates have value and if you should consider registering the securities in nominee name.

New Years Resolution # 1 – Prepare Will

The only thing worse than dying, is dying without a will.

Jack and Jill Jones are among the many Victoria couples that have never had a professionally prepared will.  They’ve thought about it often enough, but haven’t taken the step because – like a lot of couples – they avoid discussing the spectre of death during the prime earning and family years.

This avoidance can make things significantly worse for loved ones.  In fact, many families experience considerable conflict in the absence of a will or dealing with a will that is out of date.

The Joneses didn’t think they had significant assets and that they were too young for a will.   When we sat down with them and did a projected estate net worth they were shocked to discover the combined value after all personal assets, insurance, shares of Jack’s private company and the various death benefits were taken into account.  In Sandra E. Foster’s book, “You Can’t Take It With You,” she lists the top 5 reasons why people have not prepared an estate plan:

  • You aren’t concerned about taxes
  • You don’t care who will look after it for you
  • You are not old enough
  • You are immortal
  • Your family members always cooperate with each other

Seeking Legal Advice

A professionally prepared and up-to-date will provides a blueprint for the orderly and equitable distribution of your estate allowing you to name beneficiaries of your choice.  Lawyers provide guidance and advise you on the implications of the Wills Variation Act of British Columbia.   They can also advise you on the consequences of dying intestate (without a will).  Although “off-the-shelf” will preparation software is available, we always recommend seeking professional legal advice.

The Joneses met with a lawyer and provided us authorization to speak with her directly.  This communication was important as we ensured that the final will was consistent with their estate plan.  We noted through discussions with the Joneses that their biggest concern was what would happen if they both passed away at the same time.

Designating a Legal Guardian

It was important to the Joneses to know that their children will be cared for if both were to die.  A family member was willing to be designated the legal guardian in this event.  Seeking professional legal advice ensured they had the appropriate clause appointing a legal guardian in their will.  The Joneses also expressed a need to have a trust to postpone a portion of the children’s inheritances beyond the age of majority, which is 19 in British Columbia.

Appointing an Executor

The lawyer discussed the general duties of an executor, some of which are time-consuming and complicated.  Jack and Jill both felt comfortable assuming these duties and naming each other as executor.  We also discussed the services of a Professional Estate Administrator.  The Professional Estate Administrator would only be used in the event that both passed away or if the surviving spouse declined to serve as executor.  In addition, on the second passing the services of a Professional Estate Administrator would be used.  They both appointed a Professional Estate Administrator as the alternate executor.

Before meeting with a lawyer to establish or update a will we recommend that you consider the following:

  • value of your estate (listing of assets)
  • how you want your estate distributed upon your death
  • who you would appoint as executor
  • who you would select as the alternate executor (if the first executor pre-deceases you or declines)
  • who you would designate as a legal guardian (if you have children)

The above information will provide you with a head start in having a professionally prepared will.  Having a will that reflects your wishes should reduce potential conflict amongst beneficiaries and ensure the most tax efficient distribution that is consistent with your overall estate plan.

As the year comes to an end, we recommend that you consider the most basic of legal documents as your first New Year resolution.