Hold assets with your children
It seems like a common, although unnecessary, practice. Single seniors or widows usually do this themselves or at the request of their children.
One of the benefits is that it can help parents if the child cannot manage his own investment. However, the authorization document can do the same thing as adding the child’s name to the account. For transactions of other assets, including real estate and registered accounts, power of attorney or similar provincial real estate documents must be used. Therefore, adding the child’s name to the account should be unnecessary and certainly not a substitute for the authorization.
Can joint ownership save probate costs?
Another alleged benefit is that co-ownership allows the account to avoid probate. Probate is a process of verifying a will with the province, allowing the executor to allocate the estate. Probate may take up to several months after death and may have legal or government costs. Some provinces do not have or nominally probate fees, while others have estate management taxes of up to 1.695% of assets.
Co-ownership of assets between parents and children may not avoid probate due to legal precedents, such as the Canadian Supreme Court ruling in Pecore v. Pecore. By default, trust generated can be presumed when parents and adult children share assets. It seems that the child holds assets or part of the assets on behalf of the parents. Although parents and children jointly own and their right to survive, assets may be subject to probate. This means probate is not necessarily avoided.
Can joint ownership save income tax?
Having a joint margin account with your child also does not avoid paying income taxes when the parents die. Accounts can only be passed on to surviving spouses or common law partners on an extended tax basis. When a parent dies, when the child inherits an investment account or any other capital asset from the parent, it is considered a disposal of capital gains tax payable. Therefore, shared ownership with children does not avoid income tax.
Some risks that are aware of
Finally, if your child is a common account in your margin account, Chander, whether you like it or not, can use your money. Even if you trust them implicitly, what happens if they become powerless? Those who serve as their power of attorney may argue that the joint account belongs to them as well. Whether they can successfully do this is another story, but this is an example of how someone other than your child suddenly gets involved in your finances.
The same can be said if your child is sued or has been divorced. Joint ownership may expose your investment to your child’s legal issues.
Anyway
You cannot be careful to add a child’s name to your account and name the beneficiary in an unregistered margin account.
