Saturday, May 19, 2007

The Importance of Legal Advice on Joint Accounts

Two lawsuits. In each one, a father transferred investments into joint accounts with his daughter. In each case, after the father died the daughter ended up in a lawsuit with those who benefited under the father’s will. The daughter said she was entitled to keep the balance in the accounts on her father’s death by right of survivorship. Those who benefited under the will said, “No you’re not. You must pay the funds into the estate to be distributed under the will.” They fought it out in the trial courts in Ontario. In each case, the losing side appealed to the Ontario Court of Appeal. Finally, on May 3, 2007, the Supreme Court of Canada released its reasons for judgment in Pecore v. Pecore, 2007 SCC 17, and Madsen Estate v. Saylor, 2007 SCC 18. In Pecore, the daughter got to keep the balance in the joint accounts. In Madsen Estate, the daughter did not. (These cases have given me a great deal of fodder for my blog. This is my ninth post on these two cases.)

What facts distinguished Pecore from Madsen Estate?

One of the distinguishing features in Pecore is the testimony of the lawyer who took instructions and drafted the father’s will. When taking instructions the lawyer asked him about line insurance policy and Registered Retirement Savings Plan beneficiary designations. They did not specifically discuss joint accounts. The trial judge inferred from the lawyer’s evidence that the father considered when he did the will that he already had dealt with the funds in the joint accounts outside of his estate. The court inferred that he had intended the daughter to receive the investments in the accounts beneficially by right of survivorship instead of under the will. Mr. Justice Rothstein, in the Supreme Court of Canada, said that this evidence was an important indicator of the father’s intentions.

People do not usually consult with lawyers before opening joint accounts. Yet, in some cases the joint accounts may have hundred’s of thousands of dollars worth of investments in them. The law on joint accounts is subtle and complex. Front line employees of financial institutions are not qualified to give advice on the implications of joint accounts. In many cases, the contributor’s intentions are not documented.

Usually, the only opportunity a lawyer has to discuss and advise on joint accounts is when a client comes in to make or revise a will. I think it is important that lawyers take advantage of that opportunity. The lawyer should ask his or her client if there are joint accounts. The lawyer should ask with whom. What is the client’s intention? The lawyer should then give advice about any pitfalls, and offer alternatives.

Pecore and Madsen Estate illustrate the problems that can arise when a parent puts substantial assets in a joint account with one child, but then has a will that leaves part of the parent’s estate to others. There are usually better planning alternatives, including:
1. Using a power of attorney instead of a joint account if the parent’s intention is to allow the child to assist with management only;
2. Transferring the funds into a trust (after getting tax advice) if the parent wishes to save probate fees;
3. Or, if the parent does want to give the child the right of survivorship, signing a memorandum clearly setting out the parent’s intentions.

Of course, a client is free to reject a lawyer’s advice. But, when I discuss joint accounts with my clients, I make notes of what they tell me their intentions are. Even if a client chooses to keep a joint account instead of selecting what I consider to be a better alternative, at least I will have notes or a confirming letter on file reflecting what my client tells me are his or her intentions. A lawyer’s notes may assist a court in finding the contributor’s intentions, or may assist the parties in resolving a dispute out of court.

In any case, I think it is essential for lawyers and their clients to discuss joint accounts. The cost to the client is minimal when compared to the costs of lawsuits over joint accounts.

In my tenth, and (I think) last post, in this series, I am going to discuss what I think financial institutions could do better to avoid these disputes over joint accounts.

My previous in this series were as follows:

In my first post, I summarized the facts of these cases.
In my second post, I wrote about the presumptions of resulting trusts and of advancement.
In my third post, I wrote about how the Court dealt with the issue of whether a gift of a right-of-survivorship is testamentary, requiring compliance with wills legislation.
In my fourth post, I wrote about the Supreme Court of Canada has relaxed the rule against evidence of statement and acts after a transfer has occurred.
In my fifth post, I wrote about the joint account documents.
In my sixth post, I wrote about the relevance of whether the contributor of the joint account continued to use and control the account during his lifetime.
In my seventh post, I wrote about the significance of whether the contributor also appointed the other account holder as an attorney under a power of attorney.
In my eight post, I wrote about the relevance of who paid the taxes in joint account disputes.

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