Harry is a 68-year-old widower who is exploring strategies to make his estate plan more efficient. One way to do this, he has heard, is to hold investment accounts and real estate jointly with his two adult children, Josh and Kristin.

Harry is right that joint ownership can simplify the transfer of assets. When properly structured, a jointly held asset stays in the surviving owners’ hands after one owner dies. That means the asset doesn’t have to pass through the estate, so it isn’t subject to probate fees (where applicable).

However, there are also risks associated with joint ownership – and Harry should carefully consider them before proceeding.

Legal questions about beneficial ownership

When Harry’s wife Adèle passed away, all the assets they held jointly became Harry’s alone without additional instructions. However, the law treats assets held jointly between spouses differently than it treats assets held jointly by a parent and adult children.

If Harry jointly owns an investment account with Josh and Kristin, the children will remain legal owners after his death. However, they won’t necessarily be considered beneficial owners – owners who get to use, enjoy or personally benefit from the account.

Unless Harry has documented his intentions for the account, joint assets won’t be immediately available to Josh and Kristin and will instead be held in trust for Harry’s estate and distributed according to his will. That means those assets will pass through the estate and be subject to probate fees.

Immediate tax consequences

Creating a joint investment account with Josh and Kristin may trigger tax right away. If the Canada Revenue Agency determines Harry has gifted a third of the account to each child, two-thirds of the account will be subject to a deemed disposition and Harry will be responsible for paying any capital gains taxes.

Reduced control and certainty

As joint owners, Josh and Kristin can add to or withdraw from the investment account without Harry’s approval, unless the account is set up to require that all owners agree to transactions. It may also be possible for either child to unilaterally change the nature of the joint ownership from “joint tenants with right of survivorship” to “joint tenants in common.” This would allow that child to leave his or her interest in the account to someone who is not a surviving joint owner.

Vulnerability to creditor and family law claims

If Harry makes his children joint owners of an investment account and then Kristin runs into financial difficulties, the account may be vulnerable to claims by Kristin’s creditors. Alternatively, if Josh gets divorced, the account may be vulnerable to claims related to the division of matrimonial assets.

Get specialized professional advice

Before changing the ownership of any asset, speak with tax and legal advisors. Joint ownership can be an effective tax and estate planning strategy – but it isn’t the only one and it’s critical to fully understand the benefits and risks.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor, Nicolle Lalonde.