It is not uncommon for aging parents to add their adult child as a joint account holder to a bank account for convenience purposes. Where the adult child has an active role in assisting his or her parents with the management of their finances, being named on an account can alleviate roadblocks such as issues with access, authority, and management.
While having an adult child as a joint account holder can provide convenience during the parent’s lifetime, it can pose difficulties upon the parent holder passing away.
The Presumption of Resulting Trust
There is a common misconception with the treatment of bank accounts jointly held by parents and their adult children upon the parent holder passing away. It is often thought, as most banks would advise their clients, that the surviving account holder, in this case the adult child, becomes fully entitled to the account. At law, this is not the case.
In Canada, there is a long-standing common law principle of the presumption of a resulting trust which the courts rely on in determining the intention of the transferor in making a gratuitous transfer of property or assets. When a parent adds an adult child to a bank account, they are giving the adult child a legal interest in the asset for no consideration from the adult child. In this case, namely where legal interest in a joint account is transferred to an adult child, it is presumed that the beneficial interest in the account remains with the parent holder and that the adult child is holding their interest in the account in trust for the parent. The Supreme Court of Canada confirmed this common-law principle in Pecore v. Pecore, 2007 SCC 17 (CanLII), [2007] 1 SCR 795:
“since it is common nowadays for ageing parents to transfer their assets into joint accounts with their adult children in order to have that child assist them in managing their financial affairs, there should be a rebuttable presumption that the adult child is holding the property in trust for the ageing parent to facilitate the free and efficient management of that parent’s affairs”
The Supreme Court of Canada thus clearly confirms the application of the presumption of a resulting trust in the case of joint bank accounts where adult children are given a legal interest in an asset for convenience. What the Court also indicates is that this presumption is rebuttable, which means it can be reversed if the transferee can prove, based on the civil standard of proof, that the transferor had intended for the transfer to be a gift rather than a transfer for convenience.
Presumption of Resulting Trust in Estate Planning
In the context of estate planning, the presumption of a resulting trust has the effect of including such jointly held accounts in the estate of the deceased parent rather than passing outright to the surviving adult child. Upon the parent holder passing away, the adult child’s interest in the account is said to result back into the estate of the deceased parent, therefore, the value of the account is distributed as part of the parent’s estate, in accordance with the terms of their will.
Where this application can become problematic is where there are multiple beneficiaries entitled to a share in the deceased parent’s estate, and the joint account holder is claiming entitlement to the entire value of the account as the surviving holder. Where such disagreement occurs between beneficiaries, there is a greater risk of estate litigation and the need to turn to the Courts to determine the intention of the testator in making the gratuitous transfer, at which point the Court will use the presumption of a resulting trust as a guiding principle.
When Doesn’t the Presumption Apply?
The presumption of a resulting trust will only be applied by the Courts where the true intention of the transferor cannot be ascertained. Parents who have made or intend to make gratuitous transfers of property to adult children should consider speaking to their estate planning solicitor about clarifying their intentions prior to their passing to avoid any ambiguity. Some options which your solicitor may explore with you include:
- Executing a statutory declaration to confirm that in adding your adult child as a joint holder to your accounts, you intend that the account passes to them outright as a gift upon your death; or alternatively
- Executing a declaration of trust, including a provision in your will, confirming that the legal transfer of the asset to the joint holder was made for convenience purposes only, and that it is your intention that the account form part of your estate and be distributed in accordance with the terms of your will rather than passing to the joint holder upon your death.
These estate planning strategies provide testators with an additional opportunity to clarify how they wish for their assets to be distributed upon their passing away to avoid any ambiguity or disagreement between beneficiaries as to their intentions.
Avoiding Pitfalls
If your intention is to grant your adult child access to your accounts or assets for management and convenience purposes without making an outright gift of property, consider consulting your estate planning solicitor to prepare a power of attorney for property. The power of attorney for property gives your appointed attorney the power to do anything on your behalf except make a will. This includes accessing your bank accounts, dealing with financial institutions on your behalf, and managing your assets and property during your lifetime. The legal and beneficial ownership of your assets remains in your hands while your attorney is granted the requisite powers and authority to manage your financial affairs and property for you.
If you would like assistance with your estate planning, please do not hesitate to contact a member of our Wills and Estates team in Ottawa or Perth.
This blog post was written by Sara Jetten, a lawyer in the Wills and Estates team. Sara can be reached at (613) 805-7431 or at [email protected].
