Estate Planning with Joint Ownership

After a person dies, it is the responsibility of their executor to secure the deceased’s assets so that those assets can eventually be distributed to the beneficiaries. However, before they can access those assets, the executor will often have to prove to the third parties holding the deceased person’s property that they are the legitimate executor of the estate. The court application process by which the executor proves their authority is commonly called probate. Probate, in turn, triggers a tax called Estate Administration Tax.

Estate Administration Tax is calculated using the date-of-death value of the assets that are controlled by the Will that is submitted to court for probate. The tax can be reduced by having assets pass outside of the control of the Will to a person or persons via other means.

Joint ownership with right of survivorship is one such vehicle for transferring an asset outside of the control of a Will. When two or more people own an asset jointly with right of survivorship and one of them dies, the survivor(s) remain the owner(s) of the asset. It is the survivorship mechanism that “transfers” the asset; the Will of the deceased owner doesn’t play any part in the process, and in most cases, the asset avoids probate and the Estate Administration Tax.

I say “most cases” because there is one specific situation where joint ownership does not automatically transfer the asset outside of the deceased’s Will, and I often see clients caught unaware of it. The right of survivorship mechanism is presumptively reversed when the joint owners of an asset are a parent and their adult child. This reversal was decided upon by the Supreme Court of Canada in the seminal 2007 case of Pecore v. Pecore. In that case, the court ruled that when a parent and an adult child own an asset as joint owners, the legal ownership of the asset passes to the child; however, it is presumed that the deceased parent’s estate retains the beneficial interest in the asset. This means that although the child becomes the legal owner of the property, there is a presumption that they are holding the property in trust for their parent’s estate, and the asset therefore remains under the control of the parent’s Will. If the parent’s Will is probated, then the asset is pulled back into the Estate Administration Tax calculation.

The presumption can be rebutted as long as the parent has left evidence that their intent was for the surviving child to receive both legal and beneficial ownership of the asset after the death of the parent. A knowledgeable estate planner can assist with preparing the necessary evidence to rebut the presumption, as well as discussing with you whether joint ownership is the right estate planning strategy for you and your family.

The foregoing should not be considered to be legal advice and should not be relied upon as such. Please consult a lawyer to get advice and an opinion on your unique circumstances.