Unlike the traditional "Joint - with Right of Survivorship Account " JTWROS
The "JGBRS account" can be an excellent Estate Planning tool.
In the past, it was well practiced that parental owners of an Investment account would want to add their children's names to the account for estate planning purposes, supposedly resulting in a smoother "transition" and avoidance of Probate fee's. In many cases this was done without legal advice. Depending on the individuals circumstance, this was not always a wise decision.
With the traditional JTWROS, when the account owner wishes to add one (or more) of their adult children's name to the account, it can have numerous disadvantages;
- any children whose names are added to the account would automatically have the same "rights" to the account as the original parental owner
- any applicable capital gains tax would be triggered automatically, as this is considered a disposition of assets in the view of CRA
- the children can give instructions, have direct access to the assets, withdraw funds & make investment decisions
- If one of the adult children's marriage ends up in divorce, that individuals spouse my be entitled to a portion of the assets
With the more recent JGBRS Account, the benefits can far outweight the disadvantages
Tax Treatment: since the ownership of the account and assets remains with the Accountholder, this is not considered a taxable disposition at the opening of the Account.
Avoidance of probate fees: since the ownership of the Account , and assets in it, pass to the Successor Accountholders via the right of survivorship (and not under a will or other testamentary disposition), the Account and the assets in it need not be probated and will not be subject to probate fees.
Retention of Control: since the ownership of the account and assets remains with the Accountholder, only the Accountholder is entitled to give instructions with respect to the Account. The Account holder is able to retain control of the Account and assets in it during his/her lifetime, in contrast with other types of joint account. (JTWROS)
A JGBRS Account” is a “joint – gift of beneficial right of survivorship account”. Like other joint accounts, it can have multiple account holders. What is different about JGBRS Account is that one accountholder (accountholder) retains legal and beneficial ownership of the Account and all its assets, while gifting only the beneficial entitlement to the right of survivorship of the Account to one or more additional accountholders (Successor Accountholder). Legal and beneficial ownership in the Account and the assets held in the Account will transfer to the Successor Accountholder(s) only upon the death of the Accountholder.
The Accountholder owns and controls the Account and any assets in it during his or her lifetime. The Accountholder can deal freely with the assets in the Account, including withdrawing them all and leaving the Account empty, as the Successor Accountholder(s) has/have no current interest in the assets. The ownership of the Account and the assets held in the Account at the time of the Accountholder’s death passes to the Successor Accountholder(s) when the Accountholder dies.
During the life of the Accountholder, the Successor Accountholders will not be allowed to receive information about or provide instructions regarding the Account (unless they are, in addition to being a Successor Accountholder, an Interested Party, an attorney under a POA or a Trading Authority). The Accountholder alone is responsible regarding the Account and alone is entitled to make decisions, to provide instructions, to receive information, to transfer, trade or withdraw assets of the Account, or to perform any other action with respect to the Account. The suitability of all transactions in the Account will be assessed solely against the investment objectives, investment time horizon and risk tolerance of the Accountholder, and will not be assessed against those of the Successor Accountholder(s).
The Accountholder cannot remove a Successor Accountholder from the Account, or add new Successor Accountholders after the Account has been opened. Although a Successor Accountholder has no ownership of the Account or its assets during the Accountholder’s lifetime, when an Account is opened, the survivorship of the Account is gifted to the Successor Accountholder(s). That gift cannot be revoked in law which means that the gift remains with the Successor Accountholder(s) and cannot be withdrawn. The Accountholder cannot, in effect, take back the gift and give it to someone else. For this reason, if an Accountholder changed his/her mind about the inclusion of a Successor Accountholder, the only recourse is to withdraw all assets and open a new account.
In most cases, when a client's spouse passes away, I will recommend that they open a JGBRS account and transfer the assets from their original JTWROS account, and add any children they wish to deem as 'Successor Accountholders'. Of course, I always advise clients to seek legal advice before making a decision such as this. In some cases, it may not be appropriate.
If you would like more information with regards to the JGBRS account, please do not hesitate to contact me.