Should I add my adult child as a joint owner of my assets?
Several times a year, I receive questions from clients about adding an adult child as a joint owner of their assets. This could be bank accounts, investment accounts, or even as a joint owner of their home.
Several times a year, I receive questions from clients about adding an adult child as a joint owner of their assets. This could be bank accounts, investment accounts, or even as a joint owner of their home.
Joint ownership can be very convenient as it may allow either owner to transact independently. This can be very beneficial if an adult child is helping an elderly parent with financial responsibilities such as paying bills.
Beyond convenience, some families attempt to use joint accounts as a form of estate planning and probate avoidance. In some circumstances, a joint account or joint asset may avoid the probate process entirely. This can be a compelling motivator.
Why do families try and avoid the probate process? In our experience, the two most common reasons cited are the time factor and the desire to avoid probate fees.
Time Factor for Probating the Estate
Probate involves the province of BC validating the deceased’s will and providing the executor legal authority to manage the estate. Many factors can influence how long it takes to receive a grant of probate, such as the complexity of the estate, how busy the court system is, etc.
Once a grant of probate is obtained, the executor must then move meticulously in documenting all assets and liabilities, notifying creditors and beneficiaries of the estate, and beginning the process of distributing the estate. This may also involve selling fixed assets such as property, which can take months.
Each estate is different, but it is not unusual for the entire estate process from death to distribution to range anywhere from 6 to 12 months. This is one compelling reason the elderly parent may wish to save time and get assets to their beneficiaries faster.
Probate Fees:
The province of BC applies probate fees during the first step of the process, which is having the courts validate the deceased’s will. In BC, probate fees are approximately 1.4% of the value of an estate over $50,000. On a $1,000,000 estate, the province would levy a fee of approximately $13,450.
This is another motivating factor for the elderly parent who may not appreciate the idea of their estate paying a probate fee to the province.
Is Joint Ownership a Good Strategy?
This is a tricky subject for a financial planning professional to address. It touches several fields outside the financial planner’s core competencies, including taxation and property & estate law.
Nevertheless, it is a very common question.
We believe in simplifying or at least minimizing unnecessary complications for our clients. In ou opinion, pursuing joint ownership strategies with an elderly parent often (but not always) increases complexity as it raises some important issues:
Taxation:
Are we complicating the tax situation by adding a joint owner/account holder?
Who is claiming income or capital gains on the joint asset(s)?
Is a capital gain being triggered on the transfer of property to joint ownership?
Will the probate savings outweigh any potential increase in taxes?
Are you losing the capital gain exemption on half of the primary residence from that point forward?
Property & Estate Law
Who’s the beneficial owner of the asset?
Is the asset being exposed to creditors of the joint holder?
Is the asset being exposed to the adult child’s spouse in the event of a marital breakdown?
Might suspicions or a dispute arise between the adult child and their sibling(s) as to how the adult child used the joint asset(s)?
Might this increase the likelihood that your children fight over the asset(s) after you pass?
Fiduciary/Advisor Considerations:
Is probate avoidance an explicit goal of the elderly parent?
Does avoiding probate directly benefit the elderly parent?
This list is not exhaustive, but as evidenced there is a lot to consider. We generally discourage families from trying to execute probate avoidance without professional advice. We prefer they consult with an estate planning professional to minimize potential complications.
Estate planning can be complex, and there is no one-size-fits-all solution. Before embarking on joint ownership with an adult child, you should probably consider the complexity of your estate, the relations between your children and their families, and whether you’re simplifying or complicating your estate.
One of the ways that an adult child can assist and transact on their parent’s assets without having to own the asset jointly is through a legal representation called a ‘Power of Attorney.’ The parent’s responsibility is to name their child a power of attorney.
Sitting down with your financial planning professional to discuss your intentions and motivations is a great place to start. In explaining and clarifying your goals to your planner, you’ll be better prepared to maximize the value of the advice you receive when do you sit down with estate planning professional.
This information has been prepared by Joe Basque, CFP®, CIM® who is a Wealth Advisor and for Westmount Wealth Management Inc. and an Insurance Advisor for Westmount Wealth Planning Inc. Westmount Wealth Management Inc. is registered as a Portfolio Manager in British Columbia, Alberta, and Ontario. Westmount Wealth Planning Inc. is a subsidiary of Westmount Wealth Management Inc.
This presentation contains the current opinions of the Author and such opinions and the facts on which they are based are subject to change over time without notice. This material is distributed for informational purposes only and is not intended to provide personalized legal, accounting, tax or specific investment advice. Please speak to a Westmount Wealth Advisor regarding your unique situation.
