Joint accounts often present problems for estates, including for reasons one wouldn’t necessarily imagine. Many times when a will is drafted, it is thought that all of the testator’s assets will flow through the estate and be available to pay estate administration expenses, including final income taxes arising on death. However, as the remaining balance of a joint account will not necessarily fall into the estate, disputes that develop are not over ownership of the joint account; rather, they are over who should be responsible to pay the income taxes flowing from the deemed sale of a joint investment account which occurs on the death of a joint owner.
In addition to ownership claims, there can be disputes centering on deposits to or withdrawals from a joint account, especially when the person who transferred the funds into the joint account has less or no mental capacity and someone else is managing the account. In Jarvis v. Jarvis, 2007 CarswellOnt. 5727 (S.Ct.), the dispute was over deposits made to the joint account after the transferor become mentally incapable as well as joint accounts that were created after that time. The motions judge noted that such deposits may not be considered a gift to the surviving joint owner (also known as the presumption of advancement). Joint accounts that are operated after the incapacity of the transferor become contentious where matured investments are deposited into a joint account and it is not clear that the transferor directed this or was even aware that the deposits were being made to the joint account.
Where a joint account owner is also acting as power of attorney for property, disputes can arise over the failure to use the joint account to pay the ongoing expenses of the transferor who has become incapable. While the surviving joint owner may indeed be the beneficial owner of any remaining balance in the joint account on the transferor’s death, there may be concern that this person, when acting as the attorney for property, wrongly made deposits to the account from other resources that the transferor had or refused to use that joint account to pay expenses, while depleting other non-joint assets. In these cases, it is important to observe the financial records when the joint account was created as well as the spending and saving habits and records prior to the creation of the joint account or the incapacity of the transferor. This will help to determine whether the course of financial conduct has inappropriately changed to the benefit of the surviving joint owner.
In general, as is always the case with powers of attorney and similarly applies to joint accounts, one should have immense trust in the honesty, integrity and financial management skills of the person(s) you are considering appointing as an attorney for property or joint account owner. One will also have to balance the general directions that you give to the attorney or joint owner as to the uses of the account, including in the case of incapacity, while still giving them enough discretion for unforeseeable events. It is very helpful to put in writing your general wishes for the use of the joint account as well as your intentions as to its ownership on your death.
If you would assistance in planning your estate with respect to a joint account(s) or resolving a dispute in respect of a joint account(s), please contact Andrea Kelly.