Written on July 10, 2013 – 8:00 am | by Corina Weigl
This past week I was yet again reminded, in two entirely different contexts, about the pitfalls of a parent putting their property into the joint names with one or more of their children. In the first situation the planning had already been done; in the latter the planning was yet to be done. The purpose of the “plan” – avoid paying probate taxes. In the first, the savings to be achieved by the plan will undoubtedly now be entirely lost as a result of legal advice and action the parent is having to engage in, in order to wrestle control of her investment account back from her child. In the second, the costs to appropriately implement the joint tenancy arrangement so as to address some of the potential pitfalls, will undoubtedly outweigh the savings to be achieved.
The first situation, which I’ll blog about today, I’ll call – the case of the financial advisor who knew just enough to be dangerous but not enough to be useful. Here the parent was the sole owner of an investment account. The probate taxes to be saved were in the range of $30,000. Not an insignificant amount of money and with only one child, the potential risks seemed unlikely. However, as with all things where money is involved, eventually the sin bearing the colour yellow, reared its ugly head.
After the account was put into the names of the parent and the child as joint tenants, the parent had a medical setback that impacted her capacity. Thankfully with therapy and time, the parent recovered. During the intervening period all went according to plan with the child managing the account for the benefit of the parent. Unfortunately things went awry after the parent regained capacity and wanted to make some decisions about the account, which decisions the child did not agree with. Much to the parent’s surprise and despite providing a positive capacity assessment, the financial advisor would not act on the parent’s instructions, leaving the parent without a means to independently access her account. If you’ve been paying attention to other blogs from my fellow bloggers, you’ll appreciate where this matter has now headed – to the lawyers and a judge.
Now there is much in this brief recitation that has been left out. The point is that the “planning tool” of making the account joint was recommended to the parent as a means to avoid probate without the parent fully understanding what doing so would and could mean vis a vis control over the account. The legal costs that will now be incurred will far outstrip the probate tax savings.
The second situation involved a plan to put a parent’s residential property into the joint names of the parent and multiple children. I’ll save this for my next blog where I will focus on the potential pitfalls of engaging in such a plan. Stay tuned!