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.

Can't sell the deceased's house because the other joint owner is also deceased - now what?

This reader wrote to me after what appears to be years of frustration with trying to deal with two entwined estates. At the root of the issue is the fact that a joint owner of a house did not take steps to update the title after the other joint owner died. Toss in a lost will and you have an interesting situation. Neither a lost will nor a failure to deal with a land title is at all uncommon, so I thought I'd share this reader's dilemma here.

Here is the question (or should I call it a cry of desperation?):

"I hope beyond hope you can help me. Grandfather died in 1988. Grandmother was co-owner of the house. Aunt was named executrix of Grandfather's will. Aunt lost the original will. We have copies. The will wasn't probated. Grandmother died in 2001. Her estate was probated and dealt with, except for house (paid off) which we cannot sell due to joint ownership. Not one lawyer will touch this. Not sure where to start. HELP!"

 

This isn't really that complicated. If no lawyer will touch it, it's because you're asking the wrong lawyers. Find someone who specializes in wills and estates by calling the Canadian Bar Association (not the Law Society) in your province. You can also google wills and estates lawyers, then read the profiles of lawyers in your area to determine whether they have the necessary experience.

 

In order to proceed with the sale of the house, first your grandfather's name must come off the title. To do that, your aunt needs to probate your grandfather's will so that his executor will have the legal ability to sign documents on his behalf. If the original has been lost, she needs to try to probate a copy of it. That isn't done often, but can be done in certain circumstances with the permission of the court.  It's more complicated than probating an original, but not impossible.

 

If your aunt is reluctant to act, you might remind her that she may be personally responsible (i.e. not covered by the estate but out of her own pocket) for any loss that occurs to the house, loss of rent since 2001, any capital gains tax that accrues while the house is waiting to be sold, and any court costs/lawyer's fees if you have to force her to take steps. Perhaps she would find that information to be motivational.

 

It wouldn't have been necessary for your grandfather's will to be probated if your grandmother had taken your grandfather's name off the title herself after he died. She, like any surviving joint tenant, could have simply gone to the land titles office with a death certificate and had the title changed over to her name alone. But since she didn't, and may have had no idea that she could even do that, now probate is needed so that someone has legal authority to deal with the title.

 

Once your aunt obtains probate, she will have the legal authority to take your grandfather's name off the title. After that, the executor of your grandmother's estate can arrange to sell the property. The proceeds will go into the grandmother's estate, not the grandfather's estate.

 

This situation isn't really all that unusual, in the sense that surviving joint tenants often don't realize that they have to do anything with the title to their home. They understand that when one joint tenant dies, the other automatically owns the house. The word "automatically" is misleading, as it implies that no action needs to be taken. More accurately, the surviving joint tenant has the right of ownership, but must make sure that the title record is brought up to date at the land titles office.

 

In your case, the loss of the original will does complicate things somewhat, but it's not impossible to deal with. The key for you is going to be finding someone with the required depth of knowledge in this area of law.

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.

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.

Can a house be sold when one joint owner has lost capacity?

What happens when a husband and wife own a house jointly and one of them has lost mental and physical capacity? Can the house be sold? I'd like to share this reader's question with all of you because it asks about a very common situation that many of you will recognize.

"My dad was diagnosed with Alzheimer's disease and recently suffered a stroke.  He does not have a POA set up.  My parents have joint tenancy of their house in Ontario.  Is it true that we cannot sell the house to fund his nursing home expenses?"

 

The fact that you're asking whether "it's true" tells me that someone has already advised you that the house can't be sold. I have no idea whether that information came from a lawyer, realtor or just a friend, but I agree with them. The house can't be sold based on today's facts, but this can be fixed.

 

The fact that the house is held in joint tenancy by your father and mother means that the house can't be sold without signatures by both of them. It sounds as if your mother is capable of signing documents and is willing to do so, but she is only one half of the owners.

 

The question is what to do about getting your father's signature. From what you've said, he is not capable of understanding legal documents. This is not surprising given that he has Alzheimer's disease as well as the after-effects of a stroke. He cannot and should not be asked to sign anything. If he isn't capable himself, we have to look at whether anyone has the legal right to sign on his behalf.

 

Many people seem to think that a spouse can automatically sign things on behalf of the other spouse in difficult situations like this, but they are completely wrong.

 

The best solution at this point would be to use a Power of Attorney. If properly drafted, your father's chosen representative could use that document to give your father's consent for him, and to sign for him. However, you've already said that your father didn't set up a Power of Attorney, so that option is out.

 

There is another option. Someone can apply to the court to be appointed as your father's trustee. This would give someone the right to act on behalf of your father, with similar rights and responsibilities as that person would have under a Power of Attorney. Obviously going through this procedure is going to take longer and be more costly than simply using a Power of Attorney but in the absence of your father's planning, it's likely the best option.

 

It's essential that when you or your mother make this application to the court that you ensure that the power to sell real estate is included. It's not automatic in all jurisdictions.

 

If you need help getting started, any lawyer who does estate planning should be able to work with you. If you want to look into doing it yourself, you could always check out my book called Protect Your Elderly Parents: Become Your Parent's Guardian or Trustee.

 

 

 

 

 

 

 

 

 

Outsmarted by your own estate plan?

A woman recently told me her story, in which her husband recently passed away. He was relatively young and his death was unexpected. What was also unexpected was his will, which left everything to their teenaged son.

This couple had talked about estate planning, and had confirmed their intention to leave their estates to each other. They wanted to leave everything they had to their son when both of them passed away. To help bring about that outcome, the husband and wife owned their major assets jointly, and the husband named her as the beneficiary on his RRSP and life insurance policy.

Then he made a will leaving the estate to his son. It was a home-made will, prepared without legal advice.

I've seen this particular situation many times over the years. The thinking behind it is that if "everything" is already jointly owned or names a beneficiary, there is no need to name the spouse in the will. The husband was outsmarted by his own will, as it by-passed the arrangement he really wanted (leaving it to his wife) and went straight to his second choice arrangement (leaving it to his son).

The majority of the estate assets passed to the wife on the husband's death, as they had planned.

So why is the will a problem? Simply, because not every asset is covered by the joint property and designation of beneficiaries. If you're one of the people who has set things up this way with your spouse and you can't think of any assets that you might have that aren't covered, this doesn't mean there are no such assets. It just means that you aren't aware of them. In the case of the woman I recently spoke to, the husband outsmarted himself by setting up a will that would only have been useful if his wife had died before he did. He thought that was all he needed.

In this case, the husband received a significant tax refund after he died. The refund was obviously in his name only. The wife couldn't deposit it into their joint bank account because the will says that the husband's assets are to go to the son. The bank doesn't want her to open an executor's account based on a home-made will that hasn't been probated. It can't be deposited into the son's account because it isn't made out to him. So far the fight between the bank and the wife has been going on for three months and it's not over yet.

The husband in this case clearly wanted to deal with estate planning. He thought he had taken care of it. He and his wife took the steps they were aware of. Unfortunately those steps weren't quite enough and his wife is paying the price in terms of stress and upset. I really hate seeing this kind of thing, when an hour with a wills lawyer would have alerted this couple to the hole in their plan.

The lesson to be learned? Your will should say what you want, clearly and simply. If you want your spouse to have everything on your death, that's what it should say.

Can a wife turn down an inheritance from her husband if he owed more than he owned?

Recently a reader told me that her husband had passed away, and asked whether she could turn down her inheritance from him if he owed more than he owned. Is it possible for a beneficiary to turn down an inheritance? Sure. But in this situation, more questions than answers come to mind for me, so I thought I'd take this opportunity to explore what a person in this situation might want to take into consideration.

A general rule of estate law and procedure is that debts are paid first and beneficiaries only inherit if there is enough left in the estate after debts are paid. Therefore it wouldn't really help if the wife turned down her inheritance, since there wouldn't even be an inheritance if there were unsatisfied debts."Inheritance" only refers to assets that pass under the will, or on the laws of intestacy if there is no will.

This made me think that perhaps the wife wasn't really talking about inheritance. Perhaps she was actually referring to assets that passed to her because of her husband's death, but not through his estate. This would be assets that passed to her because she and her husband owned them jointly (such as a bank account or their home), or because she was the named beneficiary (such as on a life insurance policy, pension, or RRSP).

This is where the wife might want to make sure that she has personalized legal advice tailored to her situation. She needs to understand how debt, titles and taxes work in her specific situation. Let's look at a few possible scenarios. One is a joint bank account between the husband and the wife. When the husband died, the account automatically belonged to the wife. It doesn't form part of his estate and is not available to creditors.If he owed money on a credit card, she would not have to use the joint account to pay it. Similarly, a life insurance policy that named the wife would be paid straight to her no matter how much debt was owed by the husband's estate, as the policy doesn't form part of the estate.

The question asked by this reader also makes me wonder whether the wife is worried that by accepting assets, she is also assuming responsibility for his debts. Unfortunately it's commonly - and wrongly - believed that a wife takes on a husband's debts when he dies, and vice versa. That simply isn't true.

This is not to say that some assets don't come with debts attached, because they do. Some debts are secured, meaning that if the debt isn't repaid, the asset can be repossessed or other legal action can be taken. If this were the case, say for the husband's car loan, the wife could allow the creditor to repossess the car and she would owe nothing herself.

Life insured debts also factor in. Many mortgages, for example, are insured so that when either the husband or wife dies, the insurance money covers the mortgage and the surviving spouse then owns the house outright.

I would strongly urge anyone who is faced with a situation like this to sit down with a lawyer for an hour and talk it all through. This is a complicated web of several laws and rules, and nobody should expect to figure it out on their own. Under absolutely no circumstances should you listen to friends who tell you what happened to them or someone they know. The facts are different. Their case doesn't apply even if you think it's similar.

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.

An automatic right to inherit doesn't mean executor has nothing to do

Today I'd like to clear up a common but dangerous misunderstanding of language that causes a lot of trouble for a lot of families when dealing with estates. The problem arises from statements such as "the assets automatically go to the deceased's spouse".

When I and other lawyers say that an asset automatically goes to a certain beneficiary, we mean that the beneficiary has the legal right to inherit that asset. Generally that means that the right to inherit exists even without probate being obtained, and without anyone having to go to court. We do NOT mean that nobody needs to do anything to make it happen.

I hear over and over again from family members, beneficiaries and especially executors, that they think they don't need to take any steps because the inheritance is "automatic". Yes, the legal right arises automatically, but in every case the executor - or someone else - has to take steps to enforce that right.

To illustrate what I mean, let's look at some of the assets that commonly "go automatically" to a surviving spouse, or other surviving beneficiary. One of the most common is a jointly owned home. As you have read here in my blog and in other places, when one joint owner dies, the other joint owner will automatically own the entire house. That means the surviving joint tenant has the right to own the whole house and probate is not required. Think about the logistics of this. Whose name is on the title? There are two names. When one dies, there are STILL two names on the title if nobody gives a death certificate to the Land Titles Office and fills in the paperwork to take one name off. The Land Titles people don't know that someone has passed away, and even if they did, they aren't going to take steps without instructions from the person legally entitled to give them.

Let's look at a joint bank account. Same thing. There are still going to be two names on the account if nobody advises the bank that one of the owners has died.

Another asset that "automatically" transfers legal ownership is a life insurance policy. It is "automatic" because the deceased person named a beneficiary of the policy and probate is not required. But if you just sit and wait for your cheque to arrive, you will be disappointed. Someone has to provide notice and paperwork to the life insurance company to make the claim.

The executor is not necessarily the person who has to do all of the paperwork in these situations. However he or she should at the very least make sure that he provides copies of the will and death certificate where appropriate, and lets beneficiaries of joint property know of their right to inherit. The beneficiary can then notify the bank, the Land Titles Office, the pension office, or life insurance company. If an executor isn't sure that he or she has covered all the bases, he or she can consult a lawyer, or find an executor's checklist from a reliable source.

I cover this topic in my book, "Alberta Probate Kit", but the principles discussed here are not limited to Alberta.

How to make an intergenerational joint tenancy work

It's great that people are reading my warnings about using joint tenancy as an estate-planning tool without legal advice. This question from a reader gives me a reason to go a little deeper into the issue of intergenerational joint tenancy.

"I live with my mom in her principal residence. It is paid for and she has no debt. She intends to pass on the house to me after her passing, and her remaining assets divided up equally amongst the other siblings. Having read some of your other articles regarding inter-generational joint tenancy not working as true joint tenancy, what is the best and most definitive way for her to pass on her house to me without having to incur probate cost and deal with unwanted conflicts from other siblings ?"

A parent who wants to leave his or her home to one of the children has a couple of options. There is never one right answer or arrangement that suits everyone.

You are right that if your Mom doesn't add you as a joint tenant on the property, and the property is in her name alone when she passes away, it will be necessary to probate her will in order to transfer the house. Adding you as a joint tenant might or might not keep the house out of probate - more on that in a moment - but even if it did keep the house out, the chances are good that your Mom's will would have to be probated anyway if there are other assets.

If your Mom wants to add you as a joint tenant on her house so that you inherit the house on her death, it can be done. Yes, you are right that intergenerational joint tenancies don't automatically operate as true joint tenancies any more, but there is more to that general rule. If there is evidence provided by the parent at the time the property was made joint, this may well serve to create a joint tenancy that will properly hold up. This is why I always tell people not to put the house in joint names without legal advice, because the lawyer will help the parent document those intentions in the right way.

So, your Mom can add you as a joint tenant on the house and document her intentions. To make that even stronger, your Mom can make a new will close to the time she changes the title on the house and confirm her intentions in the will. As mentioned, this might not avoid probate for the other assets of the estate but it would keep the house out of probate. That would keep probate fees lower.

Conflict from other siblings is an issue that causes untold damage and I think you and your Mom are smart to think about the optics of leaving the house to you. The way I read your question, I concluded that you get the house and your siblings divide the rest, without you getting a share of "the rest". I don't know what the monetary value is, but given your concern over conflict, I assume they'll be getting less than you will in terms of value. Is there a reason why your Mom wants to give you more? Have you been the one who has always helped her, or do you already live in the house? Has your Mom already given financial help to the others? Even a brief statement in the will that explains her actions can have a calming effect. I am talking about a statement that starts off with "I love all of my children equally but I am leaving a bit larger share to Child X because...", followed by one or two lines explaining her reason.

Also, your Mom needs to clarify whether getting the house means also getting the contents of the house along with the title. Personal items cause more fights than money does, so she needs to be VERY clear on whether your siblings can take anything out of the house.

This is not a will that your Mom should be making on her own. She should talk to a lawyer who specializes in wills and estate planning to discuss the wording of the will and the implications of an intergenerational joint tenancy.

Proceed with caution when planning to avoid probate fees

We've talked about the pros and cons of putting parents' assets in joint names with the children a number of times on this blog (and we will again). This new blog post from http://www.allaboutestates.ca/ discusses the fact that when property is put into joint names, the tax imposed on a beneficiary in the long run can actually be more than the amount saved on probate fees. Click here to read the article.

What's in an estate anyway?

A reader has asked another good question, this time about what is in an estate, and how the estates of a married couple work together. Here's the question:

"Just how is an 'estate' is defined? Is it the assets and liabilities held by a couple, or by an individual? When the first of my parents passes away, will it be necessary to 'execute' the estate, or will this only happen when the second of them is gone? Their only property (their home) is of course held by the two of them together. It seems a bit ridiculous to have to go through the entire process of executing an estate twice."
Each individual has an estate, which holds all of the assets owned by that individual, as well as his or her liabilities. Sometimes, though, ownership depends on other people, so the individuals can't be completely separated. You have to understand how assets are owned and the effect of the type of ownership.

What does one half of a couple actually own? Let's say the husband jointly owns the home with his wife. He has a life insurance policy that names her, and a RRIF that names her. His bank account is joint with hers. Yes, he owns those assets during his lifetime, but none of them would be included in his estate if his wife were alive. The house and bank account would go to her by right of survivorship, so are not part of the estate. His RRIF and life insurance policy have a direct beneficiary named so they don't form part of the estate either.

How different the situation would be if the same man had the same assets but his wife had already passed away. With no joint owner any more, the house and the bank account are in his name only and are now part of his estate. With no surviving named beneficiary, his RRIF and life insurance would pay to his estate.

Most couples will intentionally set up their financial arrangements to ensure that when the first one of them dies, the other automatically receives assets either by joint ownership or by beneficiary designation. It's significantly more complicated in a blended family of course. If things are properly set up, it's not necessary to deal with the estate when the first one of the couple dies. In fact, there usually is no estate. Only on the death of the second half of the couple does it become necessary to deal with an "estate".

To achieve this proper set-up, the couple must have wills and powers of attorney. They must consult a financial planner, banker, or estate planning lawyer to ensure that they've properly named their beneficiaries on RRSPs, RRIFs, life insurance policies etc. All aspects of their finances must work together.

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.

Where there's a will: how to minimize probate fees

I'm not a fan of home-made estate planning, except when matters are extremely simple. The problem is that people hear a nugget of information and take action based on it, without really understanding the consequences of it or even whether the information really applies to them. I can't even tell you how many lawsuits are going on and how many families have been destroyed by what seemed like a simple action at the time. I'm talking about actions like putting a parent's home or account in joint names with the kids or naming a beneficiary of a registered plan such as an RRSP or RRIF.

I'm attaching an article by Tim Cestnick of the Globe and Mail. It summarizes a number of ways that people can reduce or eliminate probate fees. However, I suspect that the most important part of Mr. Cestnick's message - that you should understand what you're doing before you do it - will be lost. I say this based on many years of unwinding the home-made estate planning mistakes that well-meaning individuals have made. Click here to read the article.

I'd like to add my own message to this article. The information in the article is accurate and is important for people to know. But before anyone jumps in to reduce probate fees, find out (not by guessing or by asking your buddy at work whose aunt died a couple years ago, but from a lawyer) the following information:
- what would the probate fee on your estate actually be?
- is the probate fee worth the trouble of taking avoidance steps (e.g. in Alberta your fee can't be more than $400 no matter what you own)
- what would taking an avoidance step do to your over-all estate plan? e.g. could it disrupt your plan to treat your kids equally? Could it cause a dispute among the kids?
- what are the tax consequences of this action, both now at the time of the action and on your estate?
- what are the risks to you while you're alive? e.g. a house held jointly with a child is at risk if that child gets a divorce
- are there other ways of reducing probate that might be better suited for you?

Don't leave your family a mess to clean up by taking legal steps that you haven't thought all the way through. Talking to a lawyer for even an hour may protect your estate and your family.

Which assets does an executor deal with and which are outside of the estate?

This reader has questions about the powers and responsibilities of an executor and trustee, and which assets fall within their control. This information is essential to the estate administration process, so I thought I'd cover it here for all to read.

Here's the question:

"When an estate is probated do all assets fall under the probate or can some things be dealt with before hand such as banks, life insurance and investments and if something needs to be done through probate can we proceed at that time? If the executrix/trustee is not a joint tenant of the house, who is responsible for selling the house? Would it be the joint tenant or the trustee?"

Parts of this question are quite clear to me, though I'm not sure I understand the part about dealing with assets "before hand". I'll get to that, though.

All assets owned solely by the deceased fall into the estate. The two types of property that don't fall into an estate are both mentioned in the reader's question. One type is an asset that is jointly owned by the deceased with someone else. The other type is an asset with a designated beneficiary. These are usually life insurance policies, RRSPs, RRIFs and pensions.

Note that this does not include RESPs, which do not go to the child named in the plan, but stay in the deceased's estate.

If the house was owned by the deceased and a joint tenant, on the death of the deceased the ownership passes to the other joint owner. It would be up to the other owner to arrange for the title to be changed. Please note that where the joint ownership is between generations, such as between a parent and a child, this is THE OPPOSITE. Joint title doesn't automatically go to the child joint owner when the parent dies. The child is deemed in law to be holding the title on trust for the estate, and it's for the executor to deal with.

If the house was not held in joint tenancy but was held just by the deceased alone, it becomes part of the estate and it's the executor's job to sell it or transfer it in accordance with the will. This cannot be done before probate is issued by the court.

I'd like to get into the part about dealing with assets before hand. If the question is whether any of the assets can go out to the beneficiaries before the deceased actually dies, the answer is no. To me that seems starkly obvious but I'm asked the question frequently enough to know that not everyone sees it that way. If the person hasn't died, keep your hands off their assets even if they have named you specifically as beneficiary.

Once the deceased has passed away, the executor should advise any joint owners of the death of the deceased and tell the joint owner it's up to them to change the title. The executor should advise life insurance companies of the death of the deceased, and let the insurance company deal directly with the person named as beneficiary in the policy. The executor should also advise the bank that holds the RRSP or RRIF and let the bank deal directly with the beneficiary who will receive the funds. The executor should co-operate by giving copies of the death certificate etc to allow these other parties to get on with the business at hand. Probate is not required for these transactions.

The deceased certainly can - and should - deal with these assets before death by naming the beneficiaries on the life insurance, RRSP etc. During the estate planning process, joint assets and beneficiary designations are part of the same big picture that includes the will and power of attorney. It all has to fit together.

Anyone with this type of question who lives in Alberta can check out my "Alberta Probate Kit" book, as it covers these topics in much more detail.

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.

Probate fee planning - income tax, estate & legal issues to consider

This excellent article comes from Mark Goodfield, an experienced accountant who blogs at www.thebluntbeancounter.com. It goes into tax and legal consequences of the various ways that people try to avoid probate fees. It's a really good read if you are wondering about how probate fees might affect your plans. Click here to read it.

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.

Simple estate planning may not be so simple after all

This article from About.com discusses home-made estate planning such as putting kids' names on your assets. I agree with the author that this may not end up being as simple as you think. Sure, it's simple and easy to actually put it into place, but the outcome is often far more complex and expensive than you ever thought possible. Click here to read the article.

Just what are the assets of an estate?

It's important for an executor to have a thorough understanding of which assets are in the estate he or she is trying to administer, for several reasons. The executor has to create an inventory of assets and liabilities, which is sworn to be accurate and filed at the court. Also, the executor is personally liable for errors and negligence, and neglecting to deal with an asset would certainly count as negligence. Also, the executor usually has to answer a lot of questions from beneficiaries who are counting on the executor to be the most informed person in the group.

Some assets cause problems for executors just by their existence, and often the problem has arisen because nobody really understands whether those assets are in the estate or not. So let's try to clear up those misunderstandings.

As a general rule, assets that are held in joint names with a right of survivorship are not in an estate. This is because when the deceased person died, all of his or her right in the property automatically transferred to the surviving joint owner. An executor doesn't have to deal with the jointly owned property if he or she is looking after the estate of the first joint owner and does not have to include it in the estate inventory. All the executor has to do is inform the surviving joint owner of the death, and provide a death certificate.

The exception to that general rule is an asset that is held between a parent and an adult child as joint owners. Now those joint assets are to be considered as being held in trust by the child when the parent dies. Unless there is clear evidence that the parent did in fact want the child to own the joint asset, it must be paid into the estate and looked after by the executor.

If the deceased person owned real estate as a tenant-in-common with another person, the deceased person's share of the real estate is included in the estate.

Another asset that is not going to be part of the estate is a life insurance policy that names a specific person as beneficiary. Again, the executor isn't responsible for looking after this. The executor should let the insurance company know that the policy owner has died and provide a death certificate but after that, it's up to the beneficiary to get the money paid out.

If the insurance policy named the estate as the beneficiary, then it is the executor's job to get the money paid to the estate so that he or she can deal with it.

If the deceased owned assets such as RRSPs, RRIFs or LIRAs that name an individual as the beneficiary, the executor's duty is once again restricted to advising the plan holder (e.g. bank) of the death of the owner and providing a death certificate. If any of these plans name a beneficiary who has already passed away, the funds will be payable to the estate and in that case it's the executor's responsibility to look after it.

Usually the household goods of a married (or common law) person are only included in the estate if the spouse does not survive.

Vehicles, equipment, collections etc that are in the name of the deceased only are included in the estate. In fact, any items of any kind, from land to digital assets, that are owned by the deceased alone are included.

When the executor is preparing the inventory of the estate for filing at the court, he or she must include all assets that the deceased owned on the date of death, even if that asset has been sold or given away on the day in the inventory is done. For example, if Joe owned a car on June 19, the day he died, then his executor sells the car on July 30 and prepares the inventory on July 31, the car should still be shown on the inventory. This is because the inventory is intended to be a snapshot of the deceased's financial situation on the date of death, not on some random later date.