One of the most common estate planning techniques is adding a child as a joint owner on a bank account, investment or real estate property. Although it sounds like a simple and effective technique, it can actually cause more problems than it makes out to solve and can also result in additional money spent on legal fees and taxes, which may very well be paid from one’s estate. 

In Pecore v. Pecore1 the Supreme Court of Canada confirmed that if there is a gratuitous transfer of assets from parent to adult child, there is a presumption of resulting trust for the parent’s estate. This means that when a parent transfers property to their adult child, it is presumed that the child holds that property in trust for the parent’s estate. In order to rebut this presumption, the onus is on the adult child to prove that a gift was intended. 

There may be many reasons why parents transfer their property to their adult children during their lifetime. If you are a parent who intends to gift their adult children property, your intention must be made abundantly clear in order to avoid potential challenges of the transfer after one’s death. 

Common Pitfalls to Consider:

  • Real Estate Property 

If you have or plan to add an adult child as a joint tenant to a real estate property in order to avoid probate tax or to provide for a smooth transfer of the real property after your death, remember that this transfer may be challenged, and the rebuttable presumption will apply. Therefore, if there is a lack of evidence of your intent to gift, the real property will be presumed to make up a part of your estate.

  • Bank Accounts 
  • Often parents will add an adult child as a joint owner to their bank accounts as a matter of convenience to assist with their day-to-day banking as they become elderly. They often times sign a ‘right of survivorship’ document at the bank, which is a standard document indicting that the bank account will belong solely to the other joint owner upon death of one of the owners. However, according to the law in Ontario, this document is not sufficient evidence to prove the parent’s intention that the child should inherit the bank account through right of survivorship. Unless there is specific evidence of the parent’s intention for the bank account to flow to the child, the proceeds of the bank account will become a part of the parent’s estate. 

    • Designated Beneficiary 

    What about adding a child as a designated beneficiary to an investment account such as a RIF, RRSP or TFSA? 

    In Calmusky v. Calmusky2, the Superior Court of Justice has recently ruled that an adult child who was a designated beneficiary to his father’s RIF account was presumed to be holding the RIF in trust for the estate of the deceased and had the onus of rebutting the presumption.  Essentially, the court applied the same rebuttable presumption to the RIF beneficiary designation as to joint bank accounts and real estate property. 

    Presumably this would apply to insurance policies, pension plans and any other accounts providing for a designated beneficiary. Again, if you make an adult child a designated beneficiary, there must be specific evidence of the parent’s intention to gift; otherwise, you will leave open risk of the beneficiary designation being challenged.

    1 2007 SCC 17 [Pecore].
    2 2020 ONSC 1506.

    The information and comments herein are for the general information of the reader and are not intended as advice or opinion to be relied upon in relation to any particular circumstances. For particular application of the law to specific situations, the reader should seek professional advice.