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.