Many people share a bank account with an older parent because it’s convenient, but is it really a good idea? Kim Parlee talks to Georgia Swan, a Tax and Estate Planner with TD Wealth, about why joint accounts can become a big inconvenience tax-wise, and what other options may be available.
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- Many people share a bank account with their older parent. It may be convenient to help pay bills and make sure you can oversee their money, but is it really a good idea? Georgia Swan is a tax and estate planner with TD Wealth. She joins us from Barrie, Ontario, for this "Ask MoneyTalk." Georgia our question is my mother could use some help managing her cash-- cash flow. Is it a good idea to open up a joint account with her?
- I wish that all I could say on this topic is please don't, but I know that we're looking for a little bit more information that that. I think this-- in my entire, almost 27-year career as a lawyer, I think I probably get asked this question probably once a week. And, in that time, it has been extremely rare for me ever to find a fact situation in which I've said, you know what, in this case, I think there would be no harm if you did hold assets jointly. So starting with that, the short answer is don't do it.
- OK. And you're saying, though, also if someone does need this kind of help, there's other mechanisms to do it and this is something called a POA, or Power of Attorney.
- Exactly. The first thing that you should always do when you are considering whether a joint account between-- and in most cases we're talking about a parent and a child-- but we might, if somebody doesn't have children, be thinking about joint accounts with other family members who are the support people in this person's life. So the first thing we have to drill down to is why is it that you think you need this?
And there are a number of, I want to say myths, that people come in when they ask this question-- they think, well, I need somebody to help me with my banking, or to make-- to talk to my financial advisor, or to pay my bills. And usually you see this as parents are getting older, maybe they're a little bit more frail or they just don't want to deal with these things. And my first answer to that is you don't need to put your children jointly on your accounts in order to do that. That's what powers of attorney for property are for. And every province has the ability to do these powers of attorney because basically what you're doing is you're appointing someone to make decisions or carry out functions for you.
And the problem is that most of the time when we think of these powers of attorney, we think of them from the perspective of, oh, but I thought there were only for when I-- if I became incapable of managing my own assets because of Alzheimer's or some other mental incapacity. And that's not the case. They can be used for everyday, practical things while you're still capable but for whatever reason you need a little bit more help.
- Let's go back then to the problems that happen with a joint account. I'm sure you've got a list, given the fact of your strong suggested at the beginning. So what happens or what can happen?
- Well, what people don't realize is that there's a lot of elements from a lot of different areas of law that are brought to bear when you're dealing with joint accounts. So, first of all, from one perspective, as I said, a lot of people think that that's what they have to do for convenience. It's not. Another reason that a lot of people think they should do it is because it will avoid probate. It will avoid that asset going through the estate. And, once again, actually, that's incorrect too, depending on how you do it. Because it often-- in a lot of cases I find people say, well, yes, I'm adding my daughter or my son jointly, but it's not my intention that this money be theirs when I die. I expect them to divide it with their siblings. In that particular case that is not actually a true granting of a joint ownership in that asset. And in actual fact, for example, in Ontario, it doesn't avoid probate because that's a different relationship.
The other issue is that where you add somebody on the account, there are creditor issues, there are family law issues. All of that might be brought to bear to your account. And also what a lot of people don't realize is if it is a true addition of somebody onto, for example, an investment account or to a piece of real property, the Canada Revenue Agency, even if no money changed hands, sees that as being a disposition or basically a pretend sale of that asset to that child. So it would trigger any tax consequences of that, like capital gains or anything like that.
- Because I know you have a couple stories of-- if you have a child who's being pursued by creditors or I know you got a case of situation where in one case the child predeceased-- died before their parents and there were some issues with a spouse.
- Yeah. And in a matter that I was involved in, again, a while ago, it was a situation where the parents owned their home, their principal residence. They were getting on in years, they needed some assistance. So they had one child and assuming that everybody was going to die in the same order, they put the child on title to their home. And that child and their spouse actually moved in to assist with caring with parents in their older years.
But the unfortunate thing is that, in that case, the daughter actually passed away before the parents. What ended up happening is that the-- even though the house was put in the parents and the child's name as joint tenants, there is a little known section of the Family Law Act in Ontario which severed that joint tenancy before the child died and the son-in-law basically ended up getting an interest in the house. And, unfortunately, a couple of years later, when he decided to remarry, there was a significant disagreement between all the parties about this whole thing. And the parents ended up having to sell their house.
- I'm sure you have so many stories you could tell me about the problems with joint accounts, but let me just kind of get to the bottom line on this. And this is get a POA, as you talked about.
- Absolutely. A power of attorney for property, at this point, is a must-have document, but also get good legal and financial planning advice. This isn't something to take advice from your friend down the street who did it because it worked for them because every situation is very, very different. And you need to go to a competent estate planning or tax lawyer who can give you a full overview of all the consequences to this that might be appropriate for your particular situation.
- Georgia, thanks so much.
- Thank you.
- And if you have any questions or you would like to ask "MoneyTalk" a question. Send it to MoneyTalk@td.com with "Ask MoneyTalk" in the subject line. Then you can ask your question and we'll find the right person to answer it for you. But, as always, check on MoneyTalkGo.com, where you can find answers to all sorts of things about life and money.
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- Many people share a bank account with their older parent. It may be convenient to help pay bills and make sure you can oversee their money, but is it really a good idea? Georgia Swan is a tax and estate planner with TD Wealth. She joins us from Barrie, Ontario, for this "Ask MoneyTalk." Georgia our question is my mother could use some help managing her cash-- cash flow. Is it a good idea to open up a joint account with her?
- I wish that all I could say on this topic is please don't, but I know that we're looking for a little bit more information that that. I think this-- in my entire, almost 27-year career as a lawyer, I think I probably get asked this question probably once a week. And, in that time, it has been extremely rare for me ever to find a fact situation in which I've said, you know what, in this case, I think there would be no harm if you did hold assets jointly. So starting with that, the short answer is don't do it.
- OK. And you're saying, though, also if someone does need this kind of help, there's other mechanisms to do it and this is something called a POA, or Power of Attorney.
- Exactly. The first thing that you should always do when you are considering whether a joint account between-- and in most cases we're talking about a parent and a child-- but we might, if somebody doesn't have children, be thinking about joint accounts with other family members who are the support people in this person's life. So the first thing we have to drill down to is why is it that you think you need this?
And there are a number of, I want to say myths, that people come in when they ask this question-- they think, well, I need somebody to help me with my banking, or to make-- to talk to my financial advisor, or to pay my bills. And usually you see this as parents are getting older, maybe they're a little bit more frail or they just don't want to deal with these things. And my first answer to that is you don't need to put your children jointly on your accounts in order to do that. That's what powers of attorney for property are for. And every province has the ability to do these powers of attorney because basically what you're doing is you're appointing someone to make decisions or carry out functions for you.
And the problem is that most of the time when we think of these powers of attorney, we think of them from the perspective of, oh, but I thought there were only for when I-- if I became incapable of managing my own assets because of Alzheimer's or some other mental incapacity. And that's not the case. They can be used for everyday, practical things while you're still capable but for whatever reason you need a little bit more help.
- Let's go back then to the problems that happen with a joint account. I'm sure you've got a list, given the fact of your strong suggested at the beginning. So what happens or what can happen?
- Well, what people don't realize is that there's a lot of elements from a lot of different areas of law that are brought to bear when you're dealing with joint accounts. So, first of all, from one perspective, as I said, a lot of people think that that's what they have to do for convenience. It's not. Another reason that a lot of people think they should do it is because it will avoid probate. It will avoid that asset going through the estate. And, once again, actually, that's incorrect too, depending on how you do it. Because it often-- in a lot of cases I find people say, well, yes, I'm adding my daughter or my son jointly, but it's not my intention that this money be theirs when I die. I expect them to divide it with their siblings. In that particular case that is not actually a true granting of a joint ownership in that asset. And in actual fact, for example, in Ontario, it doesn't avoid probate because that's a different relationship.
The other issue is that where you add somebody on the account, there are creditor issues, there are family law issues. All of that might be brought to bear to your account. And also what a lot of people don't realize is if it is a true addition of somebody onto, for example, an investment account or to a piece of real property, the Canada Revenue Agency, even if no money changed hands, sees that as being a disposition or basically a pretend sale of that asset to that child. So it would trigger any tax consequences of that, like capital gains or anything like that.
- Because I know you have a couple stories of-- if you have a child who's being pursued by creditors or I know you got a case of situation where in one case the child predeceased-- died before their parents and there were some issues with a spouse.
- Yeah. And in a matter that I was involved in, again, a while ago, it was a situation where the parents owned their home, their principal residence. They were getting on in years, they needed some assistance. So they had one child and assuming that everybody was going to die in the same order, they put the child on title to their home. And that child and their spouse actually moved in to assist with caring with parents in their older years.
But the unfortunate thing is that, in that case, the daughter actually passed away before the parents. What ended up happening is that the-- even though the house was put in the parents and the child's name as joint tenants, there is a little known section of the Family Law Act in Ontario which severed that joint tenancy before the child died and the son-in-law basically ended up getting an interest in the house. And, unfortunately, a couple of years later, when he decided to remarry, there was a significant disagreement between all the parties about this whole thing. And the parents ended up having to sell their house.
- I'm sure you have so many stories you could tell me about the problems with joint accounts, but let me just kind of get to the bottom line on this. And this is get a POA, as you talked about.
- Absolutely. A power of attorney for property, at this point, is a must-have document, but also get good legal and financial planning advice. This isn't something to take advice from your friend down the street who did it because it worked for them because every situation is very, very different. And you need to go to a competent estate planning or tax lawyer who can give you a full overview of all the consequences to this that might be appropriate for your particular situation.
- Georgia, thanks so much.
- Thank you.
- And if you have any questions or you would like to ask "MoneyTalk" a question. Send it to MoneyTalk@td.com with "Ask MoneyTalk" in the subject line. Then you can ask your question and we'll find the right person to answer it for you. But, as always, check on MoneyTalkGo.com, where you can find answers to all sorts of things about life and money.
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