When the Will of a deceased individual is validated by the courts, it is subject to probate fees. These fees are based on the value of the estate and only certain assets can be excluded from these fees. Assets placed in joint names, with a right of survivorship, are excluded from such fees, and thus this is one way of avoiding probate. However, this technique, if not properly established, can have serious consequences. When assets are placed in joint names, your ability to make decisions yourself, including abolishment of said account, is lost. You must now consult the other parties involved before making any decisions about the asset. As well, joint accounts may expose your assets to creditors. When planning such an assignment, one must be aware of the nature of the joint assignment and the timing of the transfer. If the joint assignment is truly divided in two halves, thirds, etc., then this would be considered a “gift’ of beneficial interest to the new parties, and thus the new parties would have to pay taxes on their new share. If, however, the new parties were simply given an administrative interest, only to obtain beneficial interest upon death, you would maintain 100% ownership, and consequently be subject to pay the income tax on the asset. Unfortunately, most are unaware of the difference, and parties could be subject to back taxes and penalties upon death of the original owner, if the asset was gifted and they had not paid taxes on the asset.
Therefore, planning your joint survivorship properly is extremely important. It is best accomplished with an estate lawyer who can help you identify the risks and benefits of such an account, and whether it is worth it in the first place. Sometimes the probate savings are so minimal that it is not worth the hassle of a joint account. If you do choose to proceed, your lawyer can clearly document your intentions and ensure directions are in place should you no longer be able to capably make a decision. As well, they can keep records when a beneficial interest is gifted immediately, making sure the right people pay the taxes when need be. This will ensure that the purpose of the joint assignment is maintained, and will allow the beneficiaries to escape those dreaded probate fees.
by Jeffrey Muller, B.Sc., MA, LL.B.
Please contact Jeffrey at firstname.lastname@example.org