Are Joint Bank Accounts Really Evil?

Do joint accounts really create more evil than good? What if your surviving joint owner has to hire a court lawyer to get the money?

There are pros and cons to joint bank accounts. Joint bank accounts are simple will substitutes. Your surviving joint owner inherits the account. You can avoid probate with a joint account.

I recommend married spouses use joint accounts with survivorship rights. Your spouse does not have to probate a will to get a joint bank account. It saves time and money and simplifies estate planning.

Judges acknowledge joint bank accounts are legitimate will substitutes. Meaning if the survivorship rights are clear, the surviving owner automatically gets the money. With married couples, your wish to gift the bank account is usually clear. Your wishes are not always clear if you are dealing with adult children or relatives.

This is What You Need to Know

What is clear is relative.

I mean it depends if the account has $300 or $300,000. Also, it depends if you are getting the money or walking away from it.

The courts get involved to settle disputes over joint bank accounts. They primarily look at the intention of the person when the account was opened. The courts look for clarity and consider who:

• put the money in the account;
• controlled or used the account routinely; and
• claimed the interest for income tax.

Judges want evidence to answer questions. Was the joint bank account only set up as a convenience to pay bills? What do the bank documents specify about survivorship rights?

The courts will also consider when the account was opened if:

• the intention was clearly only to avoid probate costs
• only legal title to the money was intended to be transferred
• no gift of the account to the surviving joint owner was desired
• a trust agreement was created to control the money
• the person understood the rights of survivorship

If the court says the transfer of the account was gratuitous, was it a gift? If so, the person claiming the gift must prove this in court.

Having to prove intention in court is expensive.

Why is it necessary, you may ask, if survivorship rights are automatic?

The answer is there is a difference between legal ownership and beneficial ownership. The name on the account can make a person the legal owner but not entitled to the account. The money may belong to a beneficial owner.

Pecore Changes Everything

You need to understand the law has changed. This is because of the Supreme Court of Canada’s decision in Pecore v. Pecore. In 2007, the court decided the person who receives a gratuitous transfer of money holds it for the other person’s estate.

Pecore says this about a gratuitous transfer between a parent and an adult child:

Courts presume the survivor holds the bank account for the deceased parent’s estate.

The surviving owner must prove the money is theirs as beneficial owner. This means proving the deceased person made them a gift of $300,000.

See how this becomes evil in the eye of the beholder?

If you must walk away from the money, you probably think you were cheated.

If you have to hire a lawyer to get the money… you may think that is an evil too.

Whoever loses in court will think joint bank accounts are truly evil.

About Ed Olkovich

I am Toronto estate lawyer, author and editor of Carswell’s legal guide Compensation and Duties of Estate Trustees, Guardians and Attorneys. I am a Certified Specialist in Estates and Trusts law. I have handled estate disputes and probate problems since 1978. © 2014