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.