Is it a good idea to hold bank accounts and property in joint names with your intended beneficiaries to avoid probate fees and expenses?
My last column explained how the probate process and associated legal fees can be avoided altogether if joint ownership deals with all assets that would have required an estate grant.
But I ended my column with a caution that you should consider potentially bad consequences of taking that step.
Brenda is a 78-year-old widow with two children: Jessica and Dave.
Jessica is a divorced mother of Brenda’s grandchild, Stacey, who has a wonderfully close relationship with Brenda.
Jessica has been cohabiting with a new partner, Steve, for a number of years.
Dave goes in and out of relationships and has no children.
Brenda lives on a modest pension in a small condo worth $450,000.
She has a TFSA worth $65,000 and a savings account that fluctuates but is usually above $50,000.
Brenda wants to make things as easy as possible for Jessica and Dave.
She has decluttered her belongings, discussed with her children who will get anything of value of jewelry and furnishings and has pre-planned and pre-paid for her funeral.
She read my column about how the time-consuming and expensive process of probate can be avoided and added Jessica and Dave as joint owners of her condo and savings account.
She also named them as beneficiaries of her TFSA, which is how that asset can go to them without probate as well.
Brenda threw my caution about joint ownership to the wind.
Son Dave makes a good living in the oil industry but overextends himself with an expensive lifestyle, driving an expensive jacked-up pickup truck and always having the latest quad and snowmobile.
Dave’s financial world collapses when a quadding injury disables him from working. He doesn’t have disability insurance.
Making matters worse, his quadding passenger is seriously hurt and pursues a legal claim because of Dave’s carelessness.
Intending to reimburse the account as soon as he recovers, Dave starts paying rent and making his high credit payments out of the joint savings account.
Brenda gets the shock of her life when her son comes clean about draining her savings account.
That’s when she also learns about the lawsuit which, if successful, will put her home in jeopardy because Dave is on title and has no other assets to pay a judgment.
Dave offers to remove his name from the title to protect the home from circling creditors, but he learns that property transfers made with that goal are unlawful and can be reversed.
Then there’s daughter Jessica.
Jessica and her partner Steve have been living large, expecting to share in the proceeds of sale of Brenda’s home after she passes away.
But their relationship sours and they break up.
Their separation would be clean and easy if not for Steve’s claim against Jessica’s joint ownership interest in Brenda’s home.
Steve’s lawyer gets a court order freezing Jessica’s assets immediately on their separation.
What about the wonderful scenario of Brenda finding love with someone she meets at her weekly bridge club.
The two lovebirds decide to live their lives to the fullest, with plans to travel the world and indulge themselves with life’s expensive pleasures.
To do so, Brenda needs to access equity in her home.
The only way she can get a reverse mortgage is to get her children off title.
Daughter Jessica and son Dave are concerned that Brenda, who has become more and more forgetful, has fallen for a shyster who is after her money.
They refuse to transfer title. Their well-meaning refusal causes a rift in their relationship.
Finally, consider a scenario where Brenda suffers cognitive decline and then daughter Jessica dies of cancer.
Brenda is unable to change things on Jessica’s death because she no longer has the cognitive capacity to do so.
The problem is that when Brenda dies, everything will pass to son Dave with nothing for Brenda’s granddaughter Stacey.
Probate fees on a $450,000 home and $50,000 bank account are only $6,450. Adding legal fees might bring the expense from $10,000 to $15,000.
These nightmare scenarios, and many others I could come up with, make probate sound like a walk in the park.
And then there’s tax implications.
One of the most significant tax breaks we get is the capital gains exemption for our principal residence.
When you sell your home, you don’t have to pay tax on what is often a significant increase in value.
That exemption is not enjoyed by a joint owner who does not reside in the home with you.
Trying to save a few thousand dollars of probate expense might result in tens of thousands of dollars of tax liability.
I recommend that you invest the time and fees to consult with both an estate planning lawyer and an accountant with estate tax expertise so that you can make fully informed and wise choices.
I do not provide estate planning services and I am not an accountant, but I will be happy to refer you.
Keep coming with the questions!
Paul Hergott is a West Kelowna lawyer.