Joint parent/child accounts are a popular tool to help manage an aging parent’s affairs and to finesse fee and regulatory issues. However, two recent Supreme Court of Canada decisions have changed key presumptions about who gets control of those accounts when the parent dies.

Joint parent/child accounts are common. As a result, the jurisprudence arising from the cases is forcing investment advisors, lawyers, accountants and estate planners to revisit the advice they give their clients.

The more important of the two cases is Pecore v. Pecore, because in its ruling on the matter, the SCC provided guidance regarding how the transferor’s intention should be determined in future common-law decisions.

Pecore had its roots in a seemingly innocent decision by a father to transfer a portion of his savings and investments into joint ownership with his daughter. Edwin Hughes, the father, had indicated that he would provide for his daughter, Paula Pecore, and her family after his death. The transfer seemed like a logical interim step.

However, the question of ownership of the joint accounts soon became very real, because after Hughes’ death, the daughter’s marriage to Michael Pecore began to dissolve. During the divorce proceedings, the question came up as to whether she owned those accounts or whether they belonged to her father’s estate.

The resulting disagreement is no surprise, says one expert. “Disputes may arise with respect to whether the property was intended to be gifted to a particular child who held the account jointly or whether that property is actually held by that child in trust for the beneficiaries of the parent’s estate,” says Marina Panourgias, a chartered accountant and senior manager with Deloitte & Touche LLP who has researched Pecore and its implications.

At the heart of the issue in Pecore is the parties’ intent, Panourgias says: “Were both legal and beneficial titles intended to be transferred to the child? Or only the legal title?”

In Pecore, the SCC ruled that the preponderance of evidence suggested that it was the father’s intention to leave not only the legal interest in the account to Paula but also the beneficial interest. The account, therefore, was not to be considered part of the father’s estate and the court found in Paula’s favour.

In its ruling, the SCC indicated that it will henceforth presume that all transfers made by parents into joint accounts with their children are not intended as gifts, unless the transfer is made to a minor child. From now on, the onus is on the transferee to prove that the transferor intended the amount to be a gift.

On May 3, the same day the SCC ruled on Pecore, the court also made another ruling on the issue of ownership of joint accounts in another case, Madsen Estate v. Saylor, which has become a kind of companion case to Pecore. In Saylor, a father, Michael Madsen, named his daughter, Patricia, as sole executor of his estate and transferred his bank and investment accounts into joint name with Patricia. Madsen retained control of that account and paid all taxes on income earned in the account. After his death, Patricia excluded the assets from the will when she was distributing her father’s estate.

Patricia’s two siblings then commenced litigation against her, arguing that the assets from the accounts should have been included in the father’s estate. The SCC found in their favour, arguing that there wasn’t enough evidence to suggest that Patricia held anything other than legal title to the accounts.

Several factors should be considered when assessing who should get ownership of joint-account assets after a parent dies, says Archie Rabinowitz, a lawyer with Fraser Milner Casgrain LLP in Toronto.

“The different conclusions in the Pecore and Saylor decisions turned — at least, in part — on the credibility of oral evidence regarding the intentions of the transferor,” wrote Rabinowitz in a commentary on the cases. “In Pecore, testimony provided by the transferor’s lawyer was deemed to be disinterested and credible, whereas the trial judge in Saylor found the testimony of the transferee to be ‘evasive and conflicting’.”

Another key factor in establishing ownership of joint accounts is who pays the taxes on their revenue.

For example, in Pecore, the father continued to control the accounts and he declared and paid all of the income taxes on the revenue the accounts generated. This was a clear indication that they were not being gifted to Paula Pecore immediately, even though she was permitted to withdraw funds from those accounts provided she notified her father in advance.

@page_break@However, the fact that Hughes also made Paula and her husband residual beneficiaries in his will — but did not include the joint account as part of the estate’s assets — was interpreted by the courts as evidence that he intended the funds in the account to flow directly to her and not to the estate upon his death.

According to Margaret O’Sulli-van, a principal in trust and estate boutique law firm O’Sullivan Estate Lawyers in Toronto, although the decisions in Pecore and Saylor were very narrow in scope, their implications are profound: those who transfer assets into joint accounts need to make their intentions clear.

The cases are important because joint accounts, which can encompass a variety of financial assets, including cash, GICs and other holdings, are widely used financial planning vehicles, Panourgias says. “Issues regarding joint accounts come up all the time in our practice.

“Joint accounts are popular for several reasons,” she adds. “In many cases, people set them up to streamline administration. For example, for children who are taking care of an elderly parent, setting up a joint account is easier than arranging a power of attorney.”

Joint accounts are often used to sidestep probate fees. The probate process validates that a will is indeed a person’s last will and testament and that the executor is validly appointed. It provides insurance to third parties that they can safely convey a deceased’s assets. In fact, financial institutions in Ontario will generally not transfer assets worth more than $30,000 between accounts unless a will has been probated.

The fees that are attached to the probate process can be pricey. But in many cases after a death, assets that are in a joint account pass directly to the co-owner, making probate fees unnecessary. IE