Home-made estate plan claims another victim

Home-made estate planning claims yet another victim. In this case, a son who believes he is entitled to keep a GIC to which his mother had added him as a joint owner is not likely to receive the GIC he says his mother wanted him to have. Here is his question, followed by my answer.

"My mother put my name on her GIC approximately 1 year prior to her death, saying that the GIC, which is about 25% of her estate, would be for my own use. This was an extra thank you for the time and energy put forth by me (and my wife) over the last 12 years. I was my mother's care giver. Both my brother and I are Executors. He lives in the other side of the country and has for over 35 years. Due to him being an Executor and living so far away, he hired a lawyer to act on his behalf. This lawyer says I have no rights to the jointly held GIC and must turn it in.  I do know there is a law with regard to this scenario, but is it in pure stone? I understand there would be some times when this might be necessary, but when my mother jointed them with me, she had the knowledge that they would become mine should anything happen to her. Obviously neither of us knew about this law or other steps could have been taken to ensure the outcome of her actual wishes."

I can't even tell you how common this is. All over the country, parents are adding their children to their accounts, investments and real estate. And as those parents pass away, the children are being disappointed and pitted against each other to fight over the assets.

And to think that five minutes with an estate lawyer could have prevented the whole thing. If only people realized that taking steps that affect your children's legal rights without talking to a lawyer is simply a bad idea. The kick of it is that the parents generally don't even know they've left a mess behind for their kids to fight over.

The law in Canada says that when an asset is jointly owned between a parent and child (or other inter-generational arrangement such as grandparent and grandchild) and the money originally belonged to the older person, on the death of that older person the asset goes back to the estate.

If you are the parent in a situation like this and you want your child to receive the joint asset on your death, simply adding the child as a joint owner isn't going to be enough. You must also leave written instructions that the joint asset is actually intended to go to that child. The written instructions should be made around the same time you made the asset joint.

The son who wrote me this note might contact the banker who took the mother's instructions to put the asset in joint names. If the banker happened to ask the mother about her intentions, and happened to record them, that would go a long way to establishing what the mother intended for this GIC. Most banks don't keep paper files these days, but they all have customer management software that allows for  notes to be kept. You just might luck out.

If  you are a parent made the asset joint some time ago, you can still salvage the situation by  making a will that confirms that you want the joint asset to go to that child for his or her sole use. The son who wrote to me should double-check his mother's will to see if she says anything about the GIC in her will.

Once you pass away, it's too late for the child to do anything about it. It doesn't matter what the child says about the parent's intentions, even in cases like this one where there is a perfectly reasonable explanation for the child to receive extra funds.

I really feel badly for the thousands of people who have put themselves and their children in this situation. An estate planning lawyer could have given you some advice on how to record your intentions regarding the joint asset, and if it was already in joint names, could have advised you on how to set up your will to carry out your intentions.

They're joint owners but his will gives away their joint assets

Recently a regular reader of this blog wrote to me with a question that illustrates that a will is only going to work properly for you if it fits in with both the law and your circumstances. Here are his question and my answer:

"A friend of mine told me a few years ago he and his wife made their wills. In their home and bank accounts they are joint tenants. He went to his lawyer and changed his will and he said his half of the house and his half of the money goes to his two sons after his death and not to his wife. My question to you is what kind of a will is that?"

The short answer to this question is that it's a will that's only going to work if the husband outlives the wife.

In your will, you can only give away what you own at the time you pass away. Though in life this fellow owns a house and a bank account, on death (assuming he is still married) those things will automatically belong to his wife because of the law of joint tenancy. Therefore the will is trying to give away assets that it can't give away.

If the wife passes away first, the will is fine because the husband will have full ownership of the assets on his wife's passing.

I can think of a few scenarios in which a lawyer might draw up a will like this for someone (and I'm just assuming that the lawyer advised the husband about the law of joint tenancy because that is, after all, the lawyer's job). One possibility is that the husband told the lawyer that he and his wife are planning to split the property between them while they're alive so that they are no longer held jointly. Another is that the husband and wife are planning to get divorced and split up their property.

And the third possibility is that the husband mistakenly believed that if he didn't tell the lawyer that assets are jointly owned, nobody would know and he'd get away with it. You'd be amazed at how often clients don't tell the lawyer the whole story because they don't fully understand how legal ownership works. Unfortunately they pay for it big time later on because the document they pay for is not the document they really need.

The worst case scenario for a will like this is that the sons will try to uphold the will, as they will understand it to contain their father's last wishes. This means a lawsuit of course, in which the very assets they are fighting about are being depleted by legal fees, court fees and accounting fees.

Nothing good is going to happen when a person's will does not work together with that person's bigger picture of joint property, beneficiary designation, insurance and family situation.

Murder and the joint account

We've all heard the saying that "crime doesn't pay". The law sets up punishments for criminal behaviour that are above and beyond any jail terms or fines the criminal justice system might impose. For example, if you kill someone, the law says that you can't collect on the person's life insurance policy that names you as a beneficiary.

But what about a situation in which one joint bank account owner kills the other? Would the surviving joint bank account owner be entitled to the whole account? Half of the account? None of the account? This situation is fortunately extremely rare so I was interested to see how the courts would deal with it.

Click here to read an article from lawyer Chris Staples in which he looks at the recent New Brunswick case of Doyle v. Doyle. In this case, the widow of the deceased was charged with murdering her husband but at the time the joint account case was heard, she had not yet been either convicted or exonerated. In this case, the court decided that she was entitled to one-half of the joint bank account because she owned half of it already while her husband was alive.

Why you should make estate planning a priority in 2013

Estate planning isn't really about money. Many people jokingly tell me that they haven't done any estate planning because they don't have much of an estate. I understand that not everyone has tons of assets, but what is being missed is that your marriage or divorce, your joint account with your kids, and your insurance policies are all big parts of your estate plan. When you pass away, what assets you do own are going to change hands, and perhaps not in the way you anticipate or would like.

The National Post has a recent article that discusses some of these issues and the way they impact our lives. It makes a lot of sense, and applies to each and every one of us who has a spouse, divorce, children, life insurance policy, RRSP, TFSA... you get the point.  Click here to read the article.

Joint accounts - will my daughter share with my son?

A reader has brought up a question about putting his daughter's name on his bank accounts as joint owners. This is always a hot topic at seminars and meetings, and I know that many of you want information on this as well, so I'm sharing my answer here.

Here is the question:

"I have added my daughter's name to the majority of my bank accounts and been told that they are marked 'with rights to survivorship'. We live in Ontario. I have asked my daughter to do whatever she sees fit with the money which includes sharing some with my son. My son is bad with money. Would I still need to put in my will that the money is her's to spend as she wants?"

There are a few things to consider here. First of all, if your daughter gets divorced or is sued or is influenced by her husband, or just wants to go on a spending spree, you can kiss your money goodbye. You have taken some steps to address things when you pass away, but you still have to live in the meantime. You have just placed your money at great risk.

Next, who is receiving the tax T-slips for the accounts? Have you just placed a tax increase on your daughter?

As for your daughter actually receiving the money as a joint owner after you pass away, yes, including a statement about it would help clarify your intentions. There is a question about inter-generational bank accounts such as yours being true joint ownership. The law changed in 2007, though banks have been very slow in coming to terms with the change. Currently the law states that when a parent owns an asset then adds a child's name to that asset, on the death of the parent the asset is frozen and held in trust for the parent's estate. This is to acknowledge that so many people put the kids' names on things during their home-made estate planning to avoid probate, or to allow the kids to help the parents with their banking.

Right now that new rule is being applied very unevenly across the country and it seems to me there is quite a bit of confusion in individual estates as to whether an inter-generational account is really meant to be joint. If you want it to be a true joint account so that your daughter inherits all of the money in the accounts for her own purposes, then mentioning it in your will is a good way to clear up that confusion.

That leads me to my next question. Are you sure that what you really want is for your daughter to inherit all of it? If so, why didn't you just give it to her outright and not leave it in joint accounts? You mention a son. Keep in mind that under your current arrangement, she doesn't have to give him a cent. He may be somewhat upset about this and even try to sue her over it, but legally the money will be hers if you confirm this in your will.

You mention that your son is bad with money. Are you thinking that your daughter will share with him and look after the money, in that way protecting him from blowing any money he might inherit? If so, you have chosen possibly the worst possible way to bring that about. You've created no legal right for him to inherit. Your will probably says to divide your estate between your kids, which will likely upset  your son when he realizes much of the estate is already in your sister's name and out of his reach. You've placed your daughter in the unpleasant role of having to be a parental figure to her brother, deciding whether he is fit to get an allowance and doling it out to him.

I don't know which role would be worse - the brother who has to beg for money, or the sister who has to decide what to give him.

Since you're making a will anyway, you might consider putting a share for your son into a simple trust using your will. You can prescribe the terms such as when he gets the money and in what amounts.

It doesn't really make sense to me that you'd make a will, but also make all of these accounts joint with your daughter unless you really do intend to cut your son out of those accounts and ensure that only your daughter gets them for her personal use. It feels as if you're using certain tools to achieve things they were never designed to achieve. My recommendation to you is that you find a really good wills lawyer and frankly discuss your goals with him or her.

If you have Power of Attorney you don't need a joint account

Powers of Attorney continue to be poorly understood by the people who are forced to rely on them. I was reminded of this over the weekend when I spent some time talking with someone who couldn't understand why his parents' bank wouldn't let him use his parents' Power of Attorney to put his name on his parents' accounts as a joint owner.

My first thought when hearing about this scenario was that if you have a Power of Attorney you already have full access to the account. You can already do everything you need to do, such as pay bills, deposit money, roll over investments and obtain paperwork. So why would you need to be added as a joint account holder?

The big difference between having Power of Attorney access to the account and joint owner access to the account is ownership. When using a Power of Attorney you are supposed to be using the account to carry out financial transactions to benefit your parents, and you don't own the asset. When you add your name as a joint account holder, you are basically giving the money to yourself as all joint owners own the funds. That's hardly in your parents' best interest, is it?

A Power of Attorney doesn't give you the right to take assets for yourself. In fact that's the very opposite of what a Power of Attorney does.

Of course the bank isn't going to allow you to use a Power of Attorney to give your parents' money to yourself. Given the epidemic of elder financial abuse, I applaud the bank for being vigilant and knowing the limits of a Power of Attorney document. I'm sure that in this case there was no fraudulent intent by the child holding the Power of Attorney, but the bank doesn't know that, and was right to refuse the request.

At this point in the conversation, the child holding the Power of Attorney protests that he or she only wants to be added to the account to help the parents with financial transactions. But as I said at the beginning, the Power of Attorney does that for you.

I have heard of a growing movement among lawyers to suggest to their clients that they include a certain clause in their Powers of Attorney. The clause would say that the person they are naming under the Power of Attorney would not be able to use the document until they had spent an hour with a lawyer learning about what they could and could not do. I'm completely in favour of that.

In estate planning, know the hazards of joint ownership

This new article from today's Globe and Mail is essential reading for any of you out there considering putting your home or bank account in joint names with anyone other than your spouse. In this article, the possible outcomes are presented as things that could happen, but I would like to reinforce that they DO happen on a regular basis. Please read this if you've put your home, cottage, investments or any other property in joint names with your children or other people. I strongly recommend that you don't make this kind of title change without discussing it with an estate planning lawyer first. Click here to read the article from Tim Cestnick of the Globe and Mail.

Another cabin nightmare

The readers are keeping me busy with plenty of good questions these days! Here's another, which the reader referred to as "another cabin nightmare". I would certainly agree with that title.

"My mother in law owned a cabin and put the names of her 4 sons on the title. I am assuming that they are joint tenants. She passed away in 2010 and in her will it says she give, device and bequeath her property at the lake to her four sons in equal share. How can that be when they are already registered owners of the property? We are now working on her estate and the accountants say that there is $15K of capitals gains payable on the cabin. Is this right that the total capital gains has to be paid or should it only be on 1/5 of the value. She did not sell but gifted."

You're right that if the cabin was already in the names of the sons, the mother's will isn't able to transfer the cabin to them. Nobody can transfer something they don't own. The clause you mention doesn't actually transfer the title but does no harm. My guess is that the mother made the will before she transferred the title, just in case she passed away before making the change to the title. She probably just wanted to make sure that the cabin went equally to the sones. This is pretty common. It's also possible that she was told about the new rules regarding inter-generational joint property and wanted to confirm her intention to pass the title.

As for the capital gains, I am not in a position to gainsay an accountant's calculation of what is owing. In fact, I rely on accountants in my own practice to determine tax amounts owing. It's possible, in fact it's quite probable, that when the title transferred to the sons, there was no capital gains tax paid at the time, and therefore it's all still owing from back then. Your best bet is to ask the accountant for clarification of the period of time that the tax covers. Not having seen the will or any other information about the estate, the best I can do is let you know about the general rules, which you can then use to talk to the advisors working on the estate.

The fact that the property was gifted rather than sold doesn't make any difference to taxes. Both sales and gifts are considered "dispositions" for Canada Revenue Agency's purposes.

I think you will find that once you have a bit more information, the tax situation will become more clear. The executors did exactly the right thing in hiring an accountant to help with taxes. Unfortunately, once the estate is settled, the sons are just beginning the real cabin nightmare. From this point on, they will have to be unanimous in all decisions regarding usage, maintenance and sale of the property. That is impossible for most families to achieve.

Why you should think twice about joint ownership

I've often posted articles of my own and from other sources about joint ownership. The bottom line is that people use joint ownership as a type of home-grown estate planning, not realizing that they are creating a disaster. I've got some support for this point of view from the Globe and Mail's Tim Cestnick. Click here to read this article in today's Globe.

P of A sells house, puts funds in joint account with mom

Recently I had a question from a reader who was concerned about how his sibling (let's call him Joe) was handling their Mom's finances under Mom's Enduring Power of Attorney. The facts are that Joe, acting properly under the Power of Attorney, sold their Mom's house as she had moved into long-term care. So far, so good. But the questions started popping up because Joe put the sale proceeds into a joint bank account between himself and the Mom.

I'm not surprised there is concern about this. I'm concerned too. This is a completely inappropriate way to deal with the money. The money should be in the Mom's name only.

An account that is set up as "Joe, power of attorney for Mom" is still considered to be in their Mom's name because it makes it clear that Joe has no ownership of the money and must use it for Mom's benefit only.

Why would the funds be placed in a joint account in the first place? Joint ownership of a bank account means joint ownership of the money. When Mom passes away, on the face of it the funds will belong to Joe. As we know she has more than one child, it's quite likely that she wants her estate to be divided among them when she passes away. If it was Mom's house, why is Joe effectively giving money to himself by putting it in a joint bank account? This can be viewed as theft, depending on what happens next.

Often the excuse given for joint bank accounts between parent and child is that the parent wants the child to have access to help with the banking. That excuse isn't going to wash in this case. This decision wasn't made by the parent, but by Joe. Joe already had access to the funds by using the Power of Attorney. So there is no logistic excuse.

In cases like this, a person in Joe's position will often say that his Mom told him to set up the account because she wanted him to have the money, usually as a thank-you for looking after her. This isn't going to wash either. If the Mom still had the mental capacity to deal with her money to the extent of dealing with what is probably her largest asset, Joe wouldn't need to act under a Power of Attorney in the first place.

Besides, a person acting under an Enduring Power of Attorney isn't allowed to benefit personally from his or her position  (other than as specified in the document itself).

A further problem is the fact that a large amount of money (I don't know the sale price of the house) is sitting in a bank account rather than being invested. Another mistake by Joe. He should keep a reasonable amount on hand for operating expenses, then invest the rest to make the most of it.

The only two ways that Joe's actions in setting up the joint account with himself could be seen as appropriate are that a) his Mom's Power of Attorney specifically asked for that to happen (possible but not probable) or b) Joe has seen his Mom's will and knows that he is supposed to inherit the house on her death. And even then, the ground is shaky on the second possibility because their Mom is still alive.

Joe should immediately remedy this situation. Perhaps he really doesn't understand why he should not have opened a joint account. He wouldn't be the first person doing his best under a Power of Attorney but flying blind. Perhaps my reader should show Joe this blog post! This will give Joe a chance to explain his actions and reveal any good reason he may have that his sibling doesn't know about. And if it was a mistake, Joe can fix it by setting up the account properly.