Potential Risks of Joint Investment Accounts With Children

November 20, 2017

While perhaps not a glamourous topic, it is nonetheless very important for Canadian’s who hold property jointly with their spouse.  While this could include the principle residence or other property, today I’m referring to non-registered investment accounts that are held jointly.

As is a common practice, many spouses hold assets in joint name for the purpose of simplicity and efficiency.  On the death of one of the spouses, the assets remain in the name of the survisiving spouse, there is a tax free rollover and there is no probate required; all really helpful things in this situation.  But when there is just one spouse remaining, this is when things can get confusing for investors that want to add a child or another third party as a joint holder.

To be blunt, the benefits enjoyed by joint spouses are pretty much not available for other joint relationships.  The only real benefit to having a child as a joint owner of your investment account would be a savings of probate fees.  Additionally there is a perceived benefit that the estate would be easier to handle if the account is in their child’s name.  The problem is these actual or perceived benefits can bring on all types of unintended consequences; here’s an example of what I mean:

  • Mom and Dad own a joint investment portfolio of $600,000 (account is in both spouses names)
  • Dad passes away and the account is now just in Mom’s name.  When he died there were no taxes on this account due to the tax free rollover afforded spouses in this situation, nor were there any probate fees to be paid.  In this situation, having a joint account did its job.
  • Mom then decides to put one of her three children on the account (Let’s call him Chuck, who is also the executor) as a joint owner so they can avoid probate fees and simplify the estate when she passes awa

But there are many Risks associated with doing this that need to be spelled out!

Unintended Consequence #1

Once held jointly with Chuck, all assets in the account are now owned 100% by both people.  If this doesn’t immediately get you nervous then think deeper.  Chuck now owns the account and could potentially withdraw all the money and is fully entitled to do so.  Mom certainly doesn’t want this to happen as all three of her children are to inherit her money.

We will assume Chuck is a nice guy and won’t take his Mom’s money.  But the risks don’t stop there.

Unintended Consequence #2

There are tax consequences to this type of a transaction.  If Mom transfers ownership to Chuck, this change in ownership causes a “deemed disposition” which may bring with it some unwanted tax liabilities.  Mom should definitely check in with her accountant on this issue. 

Unintended Consequence #3

Chuck is married.  The rules around family law and “property” could definitely be a cause for concern.  If Chuck get’s divorced, these assets would be considered part of his assets in the divorce proceedings with his wife.  He would agrue that this is his mother’s money, but according to family law, this may prove to be a big problem for Chuck and Mom. 

Unintended Consequence #4

If Chuck has debts of his own, and he fails to pay them off, creditors could grab assets from the joint account with Mom to satisfy his debts.  Mom will definitely not be happy with having to paying off some of Chuck’s debts. 


Now let’s say that when Mom dies, and the Will is being probated, Mom’s other two children realize there is very little left in Mom’s estate; especially if she also put her home in Chuck’s name.  Suffice it to say that the kids won’t be happy and may in fact decide to bring a law suit against their brother Chuck.  I’m sure you see where this is going and none of it is good.  Even if the judge agrees with the other two children and get’s them their fair share, their relationship with chuck could be ruined forever; definitely an “Unintended Consequence” Mom did not want!

Clearly a simple request to save probate and simplify the estate process can turn into a heeping mess of “Unintended Consequences”.  The amount of risk associated with this strategy is far too great for it to make sense in most cases.

If you, your Mom or Dad, or anyone else you know is thinking of adding a child onto an investment account or other property as a joint owner, please remember the consequences and also consult your accountant and/or a lawyer first for tax and legal advice.  I hope you enjoyed this article.

Michael Coholan
Portfolio Manager, CIM
Scotia Wealth Management
ScotiaMcLeod®, a division of Scotia Capital Inc.