Jointly-held assets can cause estate headaches

08-04-2022
Jointly-held assets can cause estate headaches

Executors unintentionally put in the hotseat

 

Jointly-held assets are a popular estate planning tool because of how simple they appear. Adding a child on title to the house seems like a quick way to avoid paying probate taxes, or adding them as a joint owner on a bank account could be a convenient way to have them help out with day-to-day finances.

Quick and easy is not always the way to go. We have previously discussed why owning assets jointly with a child can cause problems with your overall estate plan (see our past blog posts, “Were You Actually Mom’s Favourite, or Did She Have a Bad Estate Plan?” and “Owning a Home Jointly with a Child – More Trouble than it’s Worth?”).

How does a joint asset held with a child affect the administration of your estate?

When a gift is not a gift

Before we answer that question, a quick review of the law on joint assets would be helpful.

When an asset is put into joint names with an adult child for no consideration, there is a presumption that the property is not a gift to that child, but rather the child is holding the property in trust for the parent, or the parent’s estate upon their death. This is the presumption of resulting trust and it is a rebuttable presumption: The party asserting that this asset is a “true” joint asset and they are the beneficial owners can rebut the presumption if they can show that there was a clear intention of the donor that the transfer was actually intended to be a gift.

So, it is the donor’s intention at the time the transfer to joint names was made that dictates whether or not an asset is a true joint asset. When the donor is no longer alive to tell us what their intention was, it is then up to the executor to take extra care in dealing with these joint assets and confirm what this intention was.

Executor’s detective work

How does an executor do this? Well, first they have to determine if the deceased owned any joint assets. This may mean writing to all financial institutions, communicating with the deceased’s advisors, and maybe even contacting family members or close friends. Care must be taken that the executor specifically requests information on all assets, including joint assets, as third parties may erroneously think that a joint asset isn’t included in the inquiry.

Once the asset has been located, the executor then needs to do their due diligence and determine whether or not the joint asset is an asset of the estate. Although the onus is on the surviving owner to rebut the presumption of resulting trust, the executor cannot rely exclusively on this.

An executor should still do everything they reasonably can to gather information and satisfy themselves on what the deceased’s intention was with respect to the joint asset. In the absence of formal written documentation from the deceased, this may mean looking at the will, speaking with tax advisors and legal advisors, looking at old tax returns of the deceased, looking at the deceased’s e-mails or written correspondence, or speaking with the surviving co-owner and other family members.

During the investigative stage, the executor should also take steps to protect the asset to ensure the surviving owner doesn’t deplete or dispose of the asset before it is confirmed that it was in fact not part of the deceased’s estate.

Consequences of delay

All this additional investigative work the executor must do to determine the deceased’s intention may cause additional delays and increased costs in the estate’s administration.

It could also lead to disputes among the executor and beneficiaries. Although the executor may do their best to collect all the information about this joint asset, there may be a lack of, or even conflicting, evidence. The executor would need to consider whether a private agreement among the beneficiaries and surviving co-owner can be reached, or whether the executor will need to apply to the court for directions on how to treat this joint asset. This only further delays the administration and increases fees, which may end up causing more dissatisfaction among the beneficiaries.

All these potential issues arise when the executor and the surviving co-owner are not one and the same. More often than not, however, an executor is also the surviving co-owner. This adds an additional layer of complexity as there now is a conflict of interest, and will not eliminate disputes with other beneficiaries.

Fiduciary duty and conflicts of interest

An executor has a fiduciary duty to act in the best interest of the estate and the estate beneficiaries. As part of this duty, they must confirm all assets of the estate. However, when the executor is also the surviving co-owner of an asset, they now also have a personal interest in this asset.

When the executor is investigating the deceased’s intention and whether or not the asset is a true joint asset, are they doing so in their capacity as an executor or in their personal capacity as the surviving co-owner? If the executor claims the transfer was a gift, they may need to renounce their right to act as executor due to the conflict of interest or be removed as executor.

There are many legal and practical considerations when owning joint assets with an adult child. In deciding to own assets jointly with your child, it is always important to speak with your legal advisors to ensure that your intentions regarding these assets are properly documented to avoid some of the challenges and headaches your executor would otherwise face.

Stephanie Battista is a partner 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

Content © 2022 by O’Sullivan Estate Lawyers LLP. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. Used with permission.

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.