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Friday, March 8, 2013

When parents open joint accounts with adult kids, others may pay the price

I'm always disappointed when I see that parents continue to put money into joint accounts with their children, when they don't intend for that child to own the money. It causes so many problems, lawsuits, delays, expense and family upset that it's simply a terrible idea.

The parents create these legally impossible situations for the children left behind. The children consult lawyers, battle lines are drawn and the family is often completely destroyed. All because it seemed "easier and cheaper" to use a joint bank account rather than a trust or a power of attorney.

This reader sent me in a question that arises out of a parent doing exactly the wrong thing, which was leaving money in a joint account with one person when she actually intended for someone else to have the money, followed by a daughter who apparently also did the wrong thing. Here is the question:

"My mom's will reads that she left money for her two grandaughters of her deceased son via two joint accounts set up between mom and her daughter. The daughter worked at that bank, stole the money and then closed the accounts. Not sure when the accounts were closed. What can be done?"
This area of law should be so clear, but it is currently very muddy. In your situation, it seems that everyone involved has made errors in judgment, including your mother, the daughter and the bank. The grandchildren pay for the mistakes.

In the old days, a joint account was always a joint account, and the surviving owner of the account always owned the money in the account when one owner died.

The law regarding joint accounts between generations - as in this case, a parent and child - changed in 2007 as a result of a couple of cases from the Supreme Court of Canada. The new law says that when there is an inter-generational joint account and the parent dies, the money is to be held in trust for the parent's estate and does NOT belong to the surviving child. If the parent did actually want that child to inherit the account, there are ways of documenting that intention that will stand up.

For some reason, many banks in Canada have simply decided not to follow the new law.

Many banks in Canada are still treating inter-generational accounts as regular joint accounts and still pay the funds to the child. This is probably what happened in your case; likely nobody batted an eye when the daughter cleaned out the account. Ironically, the court cases were intended to stop exactly this kind of financial abuse by children. Having said that, it's possible that the daughter had some kind of written document from your mother that confirmed she wanted the daughter to own the account. It would be in direct conflict with the will, but theoretically it could exist.

It looks as if the daughter is taking advantage of the mother's trust in her, the bank's failure to follow up-to-date legal policy, and the grandchildren. Many people in her situation do exactly the same as she has done. However, it's always possible that she had a different understanding about whether she was supposed to do with the account. Does she know what's in the will regarding this account? Has she ever come up with any written intention by her mother that would lead her to believe she could have the account for herself?

If communication has broken down or the daughter has dug in her heels, it's probably going to take a lawsuit against both the daughter and the bank to retrieve the money that was in the account. I'm not sure what your relationship is to all of this, but if you are the executor, then it's up to you to launch any lawsuit. Please see a lawyer with extensive experience in estate litigation to have a frank discussion. Present all of the facts and hold nothing back. Estate litigation is unpleasant, lengthy and expensive but sometimes it's the only solution. Think carefully before going ahead.

I and many other lawyers keep warning parents over and over again not to open joint accounts with their children, but until they start heeding the warning, this unfortunate situation is going to keep repeating itself and the children are going to keep paying for the parents' choices.

28 comments:

  1. My Grandmother & Father had joint bank accounts together. All money was my Grandmother's and she trusted my Father. My Father was also in her Will to be the sole beneficiary upon her passing. But was also stated in her Will that if my Father passed first, the my sister and I were to be the beneficiaries of her estate. My Father passed this March 4/14 and my Grandmother is still alive. I have now taking my Grandmother to do her banking and we have found that my Father has taken her life savings from 2 banks, even withdrawing term deposits before their date. My Grandmother and myself included are devastated. My mother is now holding all this money as it was transferred into joint accounts with my Father & Mother. Is there anything we can do? If he wasn't dead, I would go after him for elder abuse but I obviously don't have that option. My Grandmother has asked that I see what kind of information I can get about whether we can go after my Mother or not. My Grandmother is of sound mind but she will be 100 in August. Any help/direction, would be greatly appreciated. Worst my Grandmother ever did was to trust him, her son!

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  2. Where do I find the actual canadian law article concerning this? I have this situation present.

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    1. The law is found in two cases of the Supreme Court of Canada. One is called Pecore v. Pecore, [2007] 1 SCR 795, 2007 SCC 17. The other is called Madsen Estate v. Saylor, [2007] 1 SCR 838, 2007 SCC 18. You can look them up for free at an excellent legal research site called www.canlii.org.

      Lynne

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  3. Hello Lynne,
    My father was palliative for several months and he passed away 6 months ago. 2 of my siblings were named as co administrators for his estate. In the past 6 months the only information that has been provided to me has been,1) a copy of the application for probate, 2) emails stating the following...the application for probate has been filed has been filed (end of Jan), 3) that if any of the residual beneficiaries have any questions regarding anything pertaining to the estate they can send them in an email, 3) repeated lists of all the work involved in being administrators
    In the latter part of January I learnt on my own that the administrators were having select beneficiaries go in and pack up my fathers home and possessions (no inventory list had been taken. At which time I expressed my discomfort about this, to which I was told my father had to many possessions and taking an inventory would be to difficult, and my concern of individuals, some beneficiaries, going in and packing up his home was essentially ignored.

    This causing unsettling feeling for me, on my own I obtained a copy of Probate. In doing so, my discomfort grew.

    It is my understanding from conversations with my father & others that had communicated with him on the topic, that prior to his passing he wrote a check to one of the administrators for $100,000.00 that was not listed in his will, but was instructed on the family member it was to go to and when...it is not in probate and the administrators deny its existence when I inquired.
    I have also inquired what other accounts, investments or monies, may or may not have been put in an administrators name, either solely or as co owner, prior to my fathers passing and the response I received was as though I was an email that read as angry & annoyed that I would ask, and the statement that any account that had a co owner would not be in probate and is now the property of the co owner. It is my understanding that this is not true, as if they were put in someone else's name it would have been shortly before my father's passing and it would be in an adult child (administrators) name.

    I have not been informed of anything that is being or has been done with my father's belongings. if they have been given out to other residual beneficiaries ect...

    In 6 months this is all I have been informed of and when I asked questions, initially the responses were evasive and when I pushed for more direct answers, the response read as anger.

    What should I expect to be told and informed of by this point and in general. I am feeling very uncomfortable about the situation

    Thank you for any information you can give.

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  4. Sorry this law is absolutely ridiculous. If parent and child on an account, even if parent put in all funds, and the parent permits the child to spend funds throughout their life, how is not a gift? Why is a bank document with survivorship any different than a legal document that says gifT? So many people don't know about presumption of trust when they are drafting their Will & completely neglect to mention joint accounts specifically. This is just more lawyer greed than anything!

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    1. Seriously? Lawyer greed? How did the lawyers get blamed for this? We don't make the bloody laws.

      As it happens, this law exists now because so many asshole children kept stealing from their parents by making the parents add them to their accounts. So many "adult" people felt it was alright to steal their parents' and grandparents' life savings that they had to be stopped by the courts.

      And I'm sure that every time a lawyer stops another thieving skeet from ripping off parents, that makes us greedy, right? Excuse me for charging a fee for protecting your parents from your lack of moral integrity. That's my job. Do you do your job for free?

      How is a bank document with survivorship rights different than a legal document with survivorship rights? Well DUH the bank one is signed without legal advice! But you don't want to ask for that do you, because you'd have to talk to a greedy lawyer.

      So sorry that you find the law to be inconvenient. Maybe you could find a place to live where the only laws that exist are the ones that are personally convenient for you. And if you can't find such a place, don't come looking to the lawyers for help.

      Lynne

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  5. sorry Lynne, You and I are talking about two different scenarios. Elder financial abuse and joint accounts after death. A parent signs a document at a bank that has survivor ship rights. After death how is that bank document any different than a document from a lawyer? The intent of a parent is not always for convenience. It often is a gift to a loyal child that has assisted. The parent is 99% of the time unaware of presumption of trust & acted in good faith when signing the bank document. The accounts were not abused. A will was made well after the joint account, in my scenario and bank documents were signed at a bank institution she banked at for decades. My mother did not want my siblings to even know of the accounts as they were often money hungry and only used her, and had a very strained relationship with her. She didn't want to appear as though she was favouring me so she didn't mention in Will (divided residue 3 ways), it was not brought up by lawyer drafting Will & lawyer never asked. My mother's relationship with my siblings was very strained they never had any legal or care responsibilities (POA) as they could not be trusted. She only named me as an exec, I was a beneficiary of a RIFF.....YET THE ONLY THING I CAN RELY ON IS A BANK AGREEMENT TO PROVE SHE INTENDED IT TO BE A GIFT WTF!!!!!I'm sure you see my frustration! My mother was uneducated and knew little English. She did not have a Will until a year before she died!

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    1. No, we are talking about exactly the same thing. How does the judge know what your mother intended? Where are her intentions recorded? How does the judge know YOU are not one of the people who talked their mom into adding them so they could take off with the money? YOU may know what happened but nobody else does. That is how elder financial abuse happens. The fact that your mother was uneducated and unsophisticated about the law makes her more vulnerable. This is why the law is the way it is.

      Lynne

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    2. Your bank document, use and control, corroborative evidence- did anyone hear the parent say that she giving the funds to you?, POA, contemporaneous - was there a special event in your life to gift something to you. Prove these features & the fact that you had a closer relationship your beneficiaries will not find a lawyer to go against you! At least an honest lawyer.

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    3. Well, you're wrong about "proving it" and a lawyer won't go against you. You have that totally backwards. The lawyer isn't the judge. It's the judge you "prove it" to, not the lawyer.

      A lawyer will tell you what he or she thinks your chances of success are. But it's a lawyer's job to present the evidence to the judge, even if the case could go either way.

      I don't know where people get these overly simplistic views of the law.

      Lynne

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  6. come on lynne please reply to situation above

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    1. Which one? Have I answered the one you're talking about?

      Lynne

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  7. The above is a perfect example htat should be exempt from the presumption of trust scenario. The poster is talking about funds after death. Obviously there was a trusted relationship as the transferee held all legal and care responsibilities before and after death. Parents NEVER want to appear that they are favouring one over another and documentation in a Will or any other legal documentation creates disclosure that the parent does not want. If the transferee was out for elder abuse, he/she would have the accounts closed, or switched to sole ownership. Remember survivorship works both ways if the transferee dies, funds revert back to transferor. Leaving an account in joint should be an option for aging parents and adult children should be able to utilize. These agreements are made at banks that the clients have had a trusted relationship for decades and the documents are created by lawyers. Believe banks are vigilant in these agreements and have much better rapports with their clients than lawyers do!!!!! It is a very effective, efficient and discreet way to transfer funds. Because of one ridiculous precedent case there is a HUGE opportunity for lawyers to make money, which is really the intention of all this. The most ridiculous part of it in Pcore the adult child keeps the funds and there is very little evidence to "rebut the presumption of trust in the case!

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    1. You said that "obviously" there is a trusted relationship. To whom is it obvious? To the person who has told you the story? What about the rest of the family who may have a completely different interpretation of events? I can cite hundreds upon hundreds of scenarios in which people talked wide-eyed and innocently about their "trusted relationship" with their parents while at the same time ripping off the parent's life savings. Don't be so naive. This law is there to protect the many thousands of elderly Canadians who are being bled dry by their own dishonest children.

      I disagree with your logic when you say that a person intent on financial abuse would empty the account and close it, although that does happen. Many times it involves purchases such as vehicles for the child that mom or dad "gave" them. But in most cases the child simply waits for the parent to die, not wishing to alert their siblings to the fact there is an account they are going to scoop quietly when the time comes.

      Banks are not in any way vigilant about these documents. I myself have been into the bank with my adult daughter and had tellers - not banking officers - offer to open joint accounts for me and my daughter. Knowing nothing about us. Not a thing. Just hey, how about opening a joint account so your daughter can use your money?

      I agree there are cases where a banking officer gets to know a client and oversees their financial affairs. Of course there are. But they are not lawyers. To them, a joint account is a retail product like a credit card or a mortgage. It is not their job to advise the clients on what could happen legally when someone dies. If the person tells their banker that they want to transfer funds to the child, this information will come out after the death of the parent and will resolve the issue of the parent's intent.

      Love how you call the decisions of the Supreme Court of Canada "one ridiculous precedent". You do realize they are the top court of the country and it's their job to interpret the law for the rest of us, right? The Pecore case, as well as the Madsen & Saylor case, and the Sawdon case, all say one simple thing: we are supposed to deal with the joint bank account the way the parent wanted.

      And again, what's with blaming the lawyers? WE DON'T MAKE THE LAW. If we are paid to untangle the messes that you people make of your lives, why blame us? Do you blame the fire fighers when someone's house catches fire? Do you blame the dentist if you have a toothache? You're jumping on a bandwagon that you've heard of but have nothing to support.

      Lynne

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  8. As lawyers you are not "untangling" the mess , YOU are presuming there was a "mess" and creating work for yourselves. If you ask the general public how joint accounts work they identify both beneficial ownership and survivorship. Since most of the public identifies with ownership, then it should be a presumption of advancement unless otherwise proven.

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    1. Maybe stop throwing around legal terms you don't understand. The presumption of advancement only applies to minor children so that isn't applicable in most lawsuits.

      How could I possibly create work for myself by presuming there is a mess? Come on now, think it through. Clients come to me saying they are locked into a bitter struggle with their siblings over mom's account. I don't go looking for them. I don't put anyone's name on the account. I don't ask the bankers to create joint accounts without making note of why the person was added. I just sit in my cozy little office drafting wills and people come in and tell me they are ready to kill their siblings over something. Then I tell them the law and we try to figure it out. I didn't create any of it. Neither did any other lawyer.

      So most of the public identifies a joint bank account with survivorship. Hmm. Couldn't that be the very reason that it became so easy to steal your parents' money? Isn't that exactly why so many people take their parents to the bank and get them to add them to the accounts?

      And surely you don't suggest that everything the public thinks is accurate? There are people out there who think that vaccines cause autism, that the world is flat, and that there is no such thing as global warming. Even simple things like wearing seatbelts and helmets had to be made into law before people would start doing things safely.

      I do get a bit tired of people like you trying to blame everything on lawyers. Obviously you don't actually know what we do. If people screw their lives up royally and need to pay someone to clean up the mess, don't blame us.

      Lynne

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  9. The presumption of trust is merely a presumption. It can be rebutted. Contemporaneous (timing that account was made joint -was there a special event in the transferee's life?), Use and control of funds - did adult child used and controlled account upon making it joint, POA - a document that shows trust in the adult child & is used to control property and funds that are solely held, tax treatment, Judge Abella - close relationship with the adult child(for instance was the child a caregiver or POA for care), the beneficiary of RIFF or RRSP, an executor
    the esate. My siblings questioned joint accounts held with my father through their lawyer. Once their lawyer was presented with all this ample evidence...he backed right off of a lawsuit and tried to settle for a small amount. He never got anything additional than the residue of solely held assets.

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    1. That's a good result. The majority of disputes of all kinds, not just estate disputes, end up being settled one way or another before they get to trial. Sometimes all it takes is to give the full, clear picture of what was going on, as you discuss here. And by the way, it wasn't the lawyer who "backed off" - it was his client. Don't perpetuate the idea that we are out there actively trying to make people fight. It's the clients who are suing each other, not us.

      Lynne

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  10. Can you reply to the post above, I am in this scenario. My parent insisted I take the money, then she got a will, was never asked about joint accounts & thought she gifted back 5-6 years earlier. How something like that workout? Please give your opinion!

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  11. Hello Lynne, Thank you for this post. My situation is this. My father passed away, and my mother is still alive. My sister was named executor and has power of attorney. I went to the bank with my mother to make a payment to a Swedish Magazine by a bank transfer. When the teller finished the paperwork, my sister's name was the Payee. I asked the teller why my mother's name was not the payee and the teller informed me that my sister and mother were joint owners of the account. I asked why my sister's name and address was the default name and address and the teller said, I guess that's how the account was set up. I asked my mother about it, but either she didn't understand, or wants to protect my sister? My sister lives out of town. Before I ask my sister about this I'd like to know exactly where she and I stand on this matter. Thank you for your time.

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    1. What's your question? Your Mom is still living, so it's not a question about survivorship.

      Lynne

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  12. Hi Lynne, My question is: Because my sister has power of attorney should my sister be on my mother's personal chequing account, or any other accounts? (I don't know if she is on any other accounts that my mother has.) As the principal account holder on my mother's account, all mail will go to her home address. I'm sure she has access to her online banking as well. When I ask my mother about this, her reply is I really don't know, or you are on my account too. I want to take the correct action if need be. Should I seek legal counsel?

    Thanks, Gina

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    1. Hi Gina,
      The answer to this depends on what you mean by your sister being "on" the accounts. The purpose of the POA is to give her access to your mother's assets, including the bank accounts. So her name will show up as someone who can access the account and the mail will go to her. This is all fine, since that's the whole point of your mother putting the POA in place. None of that should cause concern.

      On the other hand, you might mean that your sister is "on" as a joint owner of your mother's account. This is not necessary if there is a POA, even though I see lots of people acting under POAs who don't really get it, and they open up joint accounts.

      It's possible that your mother added your sister (and possibly you) to her accounts at some point. If she did, fine. However, if your sister added her name to your mother's account, that was a mistake. As I said, the POA gives your sister everything she needs to handle money for your Mom. The only thing added by making it a joint account is ownership, and people acting under POAs are not allowed to give themselves ownership of the assets.

      I don't know if you need legal counsel. I would think it makes more sense to talk to your sister first and ask her. It seems that your Mom doesn't fully know what the situation is (which is to be expected since she has someone handling it for her).

      Once you see accounts being put into joint names, the warning flags go up. It usually means a big mess once the parent passes away. It's worthwhile to try to figure out now what your Mom intends to do and why (if) your sister is on the account.

      Lynne

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  13. So, if a joint account between a parent and child is no longer a way to have funds outside of probate and not frozen when the parent dies, what ways are available to provide unfrozen funds for funeral and other expenses?

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    1. Joint accounts ARE available for that purpose. You just have to make sure that the parent has given clear, written instructions about who owns the account.

      Also keep in mind that funeral and some other bills can be paid by the executor at the deceased's bank using the deceased's money. All they have to do is present the bill and ask for it to be paid directly. Some banks are more cooperative than others but all will pay at the very least the funeral bill.

      Lynne

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  14. My mother and I have a joint bank account. I would never do that(steal) from my siblings. My question is, would money come out of our joint account to pay for a portion of the old age home when she wants to go or, I can't care for her, if she were to be sued etc.

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