Legal vs. Beneficial Ownership: What You Need to Know

Is it better to be a legal or beneficial owner of an asset?

It is a simple question. But you may be surprised that most people don’t know the difference – and it can cost them, big-time.

Let’s rephrase this question: If your name is on a joint bank account with $500,000 in it, the question is, would you want to be the legal or beneficial owner of this account?

The simple answer is legal owners may control the account for the benefit of the (real) beneficial owner. In some cases, the same person can be both the legal and the beneficial owner. Many people do not know this. Could you say the $500,000 was your money? If proof was requested, you could show the money came from your own sources?

Courts Can Impose Trusts

Legal control may be subject to the terms of a trust agreement, a will or a contract. These agreements can create fiduciary duties. In some cases, trust terms can be imposed by law. The court can impose trusts for breaches of duties to benefit the beneficial owner if they were vulnerable. This was called a protective or constructive trust, now commonly referred to as a resulting trust.

A resulting trust creates obligations on the legal owners to hold this $500,000 account for the benefit of the beneficial owners. If there is a gratuitous transfer to you for no money, the courts can then impose this resulting trust. You only become the legal owner.

Legal Records Do Not Show Beneficial Ownership

Legal owners legally control the asset. Legal owners can be responsible for what they do to the money or property. With gratuitous transfers, the court imposes a trust in favour of the beneficial owner. This is the case unless there is evidence to prove a valid gift.

You may think you are entitled to the money because you are the legal owner of the joint account. However, you did not earn the money. You did not contribute to the $500,000 with your own money. You have the onus to prove a gift to you was intended.

Complications with Joint Accounts

What if I give you $500,000 and ask you to open a joint bank account? The day after you open the account you may be the legal owner. Who owns the money in the account if I die?

In law, the saying goes that equity does not presume a gift, only bargains. You must prove there is a gift ideally with evidence at the time you became a legal owner of the property or asset. Remember, a deceased person cannot come to court to confirm the gift was intended.

Did I intend to gift you the $500,000 in the joint bank account? The answer means that you are the legal owner of the $500,000 but not the beneficial owner. And if I died, my executor would sue you with a multitude of lawyers to recover the $500,000.

In some cases, the legal and beneficial owner can be the same person, but this may still be subject to a court-imposed trust.

Recall, this information is not legal advice. Only your lawyer can provide legal advice for your situation.

Have questions about legal versus beneficial ownership? I can help you understand how this works. Contact me for a meeting to discuss your questions. I look forward to helping you. As an Ontario Certified Specialist, estate law is all I do.