Many people in the midst of planning their estate consider adding an adult child as a joint owner on a bank account as a straightforward way to avoid probate taxes and to ensure what they expect will be a smooth transfer of funds after death. In fact, many clients tell us that their deceased parent received explicit advice from their bank that adding an adult child as a joint account holder is an appropriate probate planning strategy. However, relying on joint accounts to transfer inheritance to your children can carry legal complexities that are misunderstood and can lead to unintended consequences.
Under Ontario law, naming an adult child as a joint account holder does not automatically mean that the child becomes the rightful owner of the funds upon the parent's death. Unless there is clear evidence that the parent intended to gift the funds outright to their child, the law applies what is known as the presumption of resulting trust. This is a legal principle that when a parent transfers property to an adult child without receiving value in return, it is presumed the child is holding the property in trust for the parent's estate, not as a personal gift. In practical terms, unless the child can prove that the parent intended a true gift, the funds in the account may be treated as part of the estate and are subject to probate.
Disputes typically arise when one child is added as a joint account holder and, after the parent's death, claims the funds as their own. Other beneficiaries may object, arguing that the account was intended for estate purposes or convenience only. The presumption is that the funds were being held in trust for the estate. Meaning, without clear, contemporaneous evidence of a gift, these cases will often result in lengthy and costly litigation.
These disputes can delay estate administration, trigger court applications, and lead to fractured family relationships. Legal costs pursuing litigation can erode the very funds the joint account arrangement was intended to preserve.
When assessing whether the funds in a joint account are held in resulting trust, courts will consider factors such as: who deposited the funds; how the account was used; whether the deceased retained control; and any written or verbal statements made about the account. Where the evidence is unclear or contradictory, the surviving joint account holder often faces an uphill battle to prove a gift was intended.
Joint accounts can be an appropriate estate planning tool, but they should be used with care and proper documentation. What appears to be a simple banking decision can have far-reaching legal consequences.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
