Clearly indicate your intentions for dispersal of jointly held assets to avoid legal disputes among surviving family members.
It is quite common for aging parents to put some of their assets in joint tenancy with one or more of their children.
A joint bank account, for example, can be a good way for your child to help you manage your day-to-day finances, or to reduce probate fees down the road, or to gain other estate planning benefits.
You should be aware, however, that some joint accounts have led to nasty legal disputes among family members when their parent died.
If you have been the sole contributor to the joint bank or investment account (in other words, you have made a gratuitous transfer to your child) the dispersal of the account’s funds could become an issue when you die.
Should the funds go automatically to the child who is the surviving joint owner or should they pass to your estate and be distributed in accordance with your will?
Unfortunately, in many situations where there has been no documentation of mom or dad’s wishes regarding joint accounts, siblings have found themselves in the midst of costly and emotionally upsetting litigation.
Typically, the courts have based their rulings in such cases on two legal presumptions:
- The “presumption of advancement” assumes that you have made a gift to the child who jointly holds the account.
- The “presumption of resulting trust” assumes that a trust arises when transfers of property are made to a child with no consideration, which means beneficial ownership remains with the transferor.
Supreme Court Rulings
Thankfully, two recent Supreme Court rulings have provided at least some guidance for resolution of such situations.
In the Pecore case an elderly father had put the bulk of his assets in joint accounts with his daughter Paula.
He continued to use and control the accounts and paid all taxes on income generated from the accounts. His will left one-half of his estate residue to each of Paula and her husband. The will did not specifically mention the bank accounts.
When her father died, Paula redeemed the balance in the joint accounts as the surviving holder of the joint account. Problems arose later when Paula and her husband divorced. The husband claimed Paula had held the accounts in trust for the benefit of her father’s estate. He felt those assets formed part of the estate residue and they should be distributed in accordance with his former father-in-law’s will.
In its ruling on the claim by Paula’s husband, the Supreme Court clarified some previously contentious issues.
First, the Court ruled that the presumption of resulting trust, not that of advancement, generally applies when a parent has made a gratuitous transfer to an adult child – unless that presumption can be rebutted by evidence to the contrary.
In other words, the parent is considered to retain beneficial ownership of the joint accounts unless the joint owner child can prove that a gift was intended by the parent.
In the Pecore case, the Court ultimately ruled in Paula’s favour based on the fact that, when her father had drafted his will, he did not even mention the joint bank accounts to the lawyer. This left the impression that the father believed he had already made the gift to his daughter and therefore did not need to deal with the accounts in his will.
The Madsen case also involved an aging father who had opened joint bank and investment accounts with his daughter Patricia.
After his death, Patricia and her siblings disagreed on whether the jointly held assets should go to her or be distributed according to their father’s will.
In this case, the Court ruled that there was no evidence to suggest that her father had intended for Patricia alone to have the assets in the joint accounts.
The main lesson to be learned here is that, if you have joint bank or investment accounts with your children, use a separate written declaration, or your will, to clearly indicate your intentions for ultimate dispersal of those jointly held assets.
You definitely do not want your family exposed to a dispute over such matters once you are gone.