# Joint accounts - death of one holder - tax implications?



## yyzvoyageur (Apr 10, 2009)

If a person has joint accounts with his adult child and he dies are there any tax implications or does the account pass on in full to the adult child? Would it be prudent to move the money into a different account before the bank finds out about the death? The concern is the account being locked up for months or longer. What about accounts joint with a spouse when the other spouse dies? Is there a difference for tax implications if we're talking about joint savings accounts versus joint investment accounts (mutual funds)? Is there a deemed disposition or anything of that sort? Thanks.

I'm talking about Ontario here.


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## stardancer (Apr 26, 2009)

RE joint savings/chequing accounts:

As far as I know the account passes to the survivor on the death of one holder. His/her name is taken off the account and no cheques/deposits/etc can be done in his/her name from that point on.
If the interest has been declared as 50/50 or wholly by the deceased in the past, then that portion of the interest goes on his/her tax return up to the date of death. The survivor then takes the rest of the year.


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## OhGreatGuru (May 24, 2009)

Re mutual fund accounts, the tax implications are a bit more complicated. As far as transfer of ownership is concerned, there is no problem as long as account is JWROS. There should be no delay.

Taxes: CRA has attribution rules regarding "ownership" of assets in joint accounts. Earnings and capital gains are supposed to be divided between the holders in accordance with those attribution rules. On the death of one account holder, there is a deemed disposition (at FMV) of their share of the account. Any capital gains/losses on that share are reported on the Final Return of the deceased. The surviving account holder has a deemed acquisition of the shares at FMV, whcih affects their overall Adjusted Cost Base.

Exception No.1: If the joint account holder is a spouse, nothing needs to be reported, because capital gains is deferred for transfers between spouses until the survivor sells or dies.

Exception No.2: If the joint account was set up on such a way that the survivor did not have a "beneficial interest" in it during their lifetime (ie the account was treated as belonging 100% to the deceased, and the joint account was for estate/administrative purposes only), then the entire account is deemed to be disposed at FMV, and the estate is taxed on the proceeds. 

Exception No. 3. If the joint account was set up on such a way that the deceased did not have a "beneficial interest" in it during their lifetime (ie the account was already treated as belonging 100% to the survivor, and the joint account was for estate/administrative purposes only), then there are no tax consequences and no deemed disposition.

PS. Exception No.2 would be a common situation where an adult child is made joint account holder with a parent in order to be able to assist the parent with management of their affairs, and to keep the account out of the estate and probate. Some estate planning web sites advise signing a formal "side agreement" for such arrangements. But if the funds in the account all came from the parent and if the earnings in the account are always reported as income by the parent; then CRA has ample paper trail to be satisified. Really, it's no different than any other joint account, only simpler because 100% can be attributed to one account holder. So a "side agreement" should not be needed for CRA's purposes.

What may make some lawyers nervous is the possibility of some other potential beneficiary challenging the fact that the joint account passed the money outside of the estate. This is probably why some sites recommend a side agreement. You would have to make a judgement about the specific family circumstances. But IMHO if other beneficiaries of the estate are aware of the arrangement, and the family is not disfunctional, then a legal agreement should not be necessary in most cases. Of course if there is a lot of money at stake a legal agreement may be wise - it is amazing what greed can do to people.

PPS: What will lock up an account for months is if the account is not joint. Unless the account is small (RBC's limit is ~$30K) they will not release it to the executor without a probated will, which can take months to get. 

PPPS: Jointly-held safety deposit boxes are a different story. They are not JWROS bank accounts. The bank doesn't know who may actually own the different contents, and believes it can get into trouble if they let the survivor clean it out, only to find that the deceased bequeathed the family jewels to someone else. (Which is a bit silly actually, because the same misappropriation could occur while the box holders are all still alive.) It may be that the bank, not knowing the value of the contents of the safe deposit box, plays it safe and insists on a probated will before releasing it. But I recall my Dad telling me to clear out his Safe Deposit box first, then tell the bank he was dead, based on problems some friends had had. (It eventually became moot as I moved the contents of his SDB to mine after he went into long term care).


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## yyzvoyageur (Apr 10, 2009)

Thanks for the information! The safety deposit box issue wasn't something I had even considering, but is definitely relevant to my current situation.


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