Forgotten assets can complicate estate plans

Find, itemize and track orphan assets

When building a life together, one of the more important decisions for married spouses or common-law partners is how to deal with their respective assets and whether or not some or most should be combined.

Holding assets jointly with your spouse or partner, particularly in less complex estates, is a popular estate planning tool for many reasons, not the least of which is its simplicity. It doesn’t require much more than adding your spouse to title of the asset or property, ideally after you obtain legal and tax advice as well as considering personal implications. However, it may not be suitable in all circumstances, for example, if each spouse or partner wishes sole ownership and control, where there is a need for asset protection or to ensure capital succession to children, including funding of a trust structure under a Will.

Another advantage to joint ownership with right of survivorship is that the asset will fall outside of the estate when the first spouse dies and not be subject to Ontario Estate Administration Tax (also referred to as probate fees), which is currently 1.5%. It also ensures the surviving partner has immediate access to the asset on the death of the first-to-die, and they do not need to wait for a grant of probate in order to gain access to the asset.

Coupled with ensuring all beneficiary designations for registered plans and life insurance policies are up to date and designated to the spouse, it is quite possible that a Will may not play any significant role on the death of the first spouse (although it is very much still recommended).

So, when a couple starts their life together, one of their first considerations is often structuring how to hold their assets and beneficiary designations.

But what if a spouse forgets they have an asset?

Let’s talk about Annie and her very first savings account. Annie opened this account as a young teenager, and for years would deposit all of the money she earned from after-school and summer jobs into this account, as well as any generous gifts she may have received from her family over the years for birthdays and graduations. She was diligent with her savings and never touched this account.

Annie eventually finished university and started her first job at a bank where she opened up a bank account with her new employer, and a few years later, an investment account.

Annie eventually met Bob, fell in love and got married. They decided to combine all of their assets, and so Annie added Bob to title of her new bank account and investment account, and Bob added Annie to title of his assets. When they eventually purchased their first home together, they made sure they were both named on title with right of survivorship. As they opened up their own retirement plans and purchased their own life insurance policies along the way, they made sure that they named the other as the designated beneficiary. Everything was all set. Except for Annie’s very first savings account.

When Annie passed away several years later, Bob thought the administration of her estate would be simple as everything would automatically pass to him by right of survivorship or via a beneficiary designation.

However, one day while cleaning the house, Bob found a bank statement from a bank he’s never had any personal dealing with and was shocked to see that there was an account in Annie’s name worth approximately $100,000!

This one “little” asset has now put a perfectly good estate plan in jeopardy. Because this asset is in Annie’s name alone, and given its value and that neither Annie nor Bob have any other dealings with this bank, the bank required that Bob obtain probate in order to access this amount.

Luckily for Bob, he and Annie did in fact have Wills, and Bob was able to apply for probate as Annie’s executor. Bob obtained the grant of probate and was able to transfer the proceeds of the account to himself as the sole residue beneficiary of Annie’s estate. The additional legal fees incurred to apply for probate and payment of probate tax were not ideal, but what was hardest for Bob was the extra time and emotional cost him to deal with this one asset.

But it could have been worse. What if Annie didn’t have a Will? The process for applying for probate without a Will when there is an intestacy would be more challenging, and Bob may be required to post a bond to act as executor. As well, the distribution of the asset would be subject to the laws of intestacy. If Annie and Bob were not married, but were instead common-law, then Bob also would actually not have any entitlement to this asset no matter how long he and Annie were together.

Further complications could arise if this forgotten asset was in a foreign jurisdiction. Perhaps Annie lived abroad for a couple of years and opened up an account in France, but forgot to transfer it over when she came back home and married Bob. Bob would likely have to retain legal counsel in France to determine the requirements to grant him authority in France, assuming as a non-resident he even is allowed to act. Ultimately, Bob would need to consider whether the value of the forgotten asset is even worth the additional time and costs it may take to gain access to it.

Keeping everything joint with a spouse or partner can be a good planning tool in some circumstances when done properly. But in order for the plan to be effective, keeping track of all assets you have, no matter how big or small, or how old or new, is critical.

Stephanie Battista is an Associate Lawyer at O’Sullivan Estate Lawyers. She practices exclusively in estate and trust law, focusing on all aspects of estate planning and estate administration in order to provide clients with sound and helpful legal advice. She advises clients on their succession plan including wills, trusts, powers of attorney and domestic contracts. She also advises executors, trustees, and attorneys on their duties and obligations, and provides guidance through the complexities of the estate administration process as well as estate and trust accounting. This article originally appeared in the O’Sullivan Estate Lawyers blog. Used with permission.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. It is not intended to provide specific personalized advice on any individual situation, including, without limitation, investment, financial, legal, accounting or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your particular circumstances.