In my last blog, Think FAST! Adding Kids to the Account - Tax Consequences for Adding Kids to the Account, I discussed the possible tax consequences triggered when some parents add their children to their account. Commonly, children are added to accounts because the parent does not want assets to pass through their will, which requires a lengthy and costly probate process. However, there are consequences, including  (1) potential tax consequences when one closes the original account and opens the new account to include additional names (2) the children may face tax consequences because they are now joint owners of your assets (3) the parents lose control of their assets because the children have become owners and can change or withdraw assets in the account (4) if your children go through a divorce, part of the assets that are in your joint account may become part of a divorce settlement (5) your children’s creditors may come after the joint account as part of a lawsuit settlement. Therefore, if the overarching reason for adding children’s names to the account is to simplify the inheritance process and avoid probate fees, the parent should consider an alternative method to help mitigate the consequences mentioned above.  Using a specific type of joint account called a “Joint Gift of Beneficial Right of Survivorship Account” (JGBRS) may be the solution for these parents.

A JGBRS account is a joint account with multiple accountholders that are specifically classified as either the “Accountholder” or the “Successor Accountholder(s).” In a JGBRS Account, the Accountholder retains legal and beneficial ownership of the Account and all its assets while only gifting the entitlement to be a beneficiary or survivor of the account to the Successor Accountholder(s). Therefore, the Accountholder retains sole ownership while alive and the Successor Accountholder(s) takes over the account when the Accountholder passes away. Since the Successor Accountholder(s) do not have ownership of the assets while the Accountholder is alive, they cannot change or withdraw the investment, they will not file taxes on the investments, nor will it be exposed to creditors or divorce settlements. Moreover, a JGBRS does not trigger a deemed disposition when a Successor to the account is named and therefore avoids any tax paid upon opening and transferring assets to the new account. In all, the JGBRS account seems to protect clients from the major consequences that are caused by using a more traditional joint account.

If the Accountholder changes their mind about who the Successor Accountholder(s) should be, they can close the original JGBRS Account and open a new JGBRS Account with a different Successor Accountholder(s). Bear in mind that a final tax return still has to be filed when the parent passes away, and the children will be responsible for any future taxes. Currently, this type of JGBRS Account is only available to Canadian residents and can only have one Accountholder, although there may be multiple Successor Accountholders. If you are interested to learn more about this specific estate and tax planning tool, kindly reach out to me or one of our advisors.

 

The content in this article is for information purposes only and does not constitute tax or legal advice. It is imperative that you obtain professional advice from qualified tax and legal advisors before acting on any of the information in this article. This will ensure that your own circumstances are properly considered, and that action is taken based on the most current legislation.