Why joint accounts can cause family feuds

Open this photo in gallery:Joint accounts are often set up as an easy way for adult children to help aging parents pay the bills, but there are significant risks.Jacob Wackerhausen/iStockPhoto / Getty ImagesShareSave for laterPlease log in to bookmark this story.Log InCreate Free AccountWho owns the money in a joint account when a co-account holder dies? Jonathan Hooper, partner and estate lawyer with Tupman & Bloom LLP in Halifax, says the Supreme Court of Canada made it clear in a 2008 decision that if a non-spouse is meant to receive the money in a joint account as a gift, it requires clear evidence in writing.Nevertheless, litigation still occurs frequently among heirs, he says. Globe Advisor spoke with Mr. Hooper recently about the downsides of joint accounts.Do clients often ask about setting up joint accounts with their kids?Many have already set up joint bank accounts before they even meet with me and haven’t thought through the consequences. If they haven’t set it up, the first thing I ask is, ‘What do you want to accomplish with the joint account? Are you looking to avoid probate fees? Do you want ease of planning after you pass away? Are you looking to make a quick gift that’s simple and efficient?’ That might be the first time they’ve had that conversation in a meaningful way.What are the risks of a parent adding their child to their bank account?There are so many risks. When you’re adding someone to your account, you’re exposed to the other person’s creditors. There’s the risk of the adult child having full access to the money. I’ve encountered instances in which an adult child ‘borrowed’ the money and didn’t pay it back. Or they just drained the account and treated the money as their own. I’ve had plenty of parents say later on, ‘Let’s reverse this.’ Well, they can’t. The joint account owner is now an owner of the account, so you need their consent. So, we have to find workarounds. For example, if the person is still competent, you can set up a new bank account and transfer all of the money from the joint account into the new one. How do you avoid unintended issues with joint accounts?Joint accounts can work if they’re set up properly and thoughtfully. For example, if someone is being added to help pay bills or is an attorney under a power of attorney document, one safeguard is having a written agreement with the other joint owner that states, ‘I’m adding this person to my account for convenience. They’re on the account to pay bills.’As long as that’s in writing, if that other joint owner does anything outside of that scope, then there’s a clear breach of their duty. How are joint accounts being used in estate disputes? Unfortunately, it’s becoming common for some people to use a joint account as a wedge or as a tool to get back at their siblings or beneficiaries. While they know the money may belong to the estate, the surviving account holder may not release the funds until they get the photo album, the car – whatever it happens to be. It’s a bargaining chip, a power play, and that’s totally unfortunate.How can they do this if the money belongs to the estate?There are different kinds of legal ownership that apply, whether the account owners or the bank realizes it. For example, when a person adds a non-spouse to their bank account and then dies, the non-spouse holds the proceeds of the bank account in trust for the estate of the deceased person (unless a gift is intended). They may be the legal owner, but not the…

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