Here is a common scenario…
Mr. Planner is in his late-80’s. Mr. Planner’s spouse passed away one year ago. Mr. Planner has three children, all of whom are over the age of 50.
Mr. Planner lives in a city we will call “Hometown.” One of his children also lives in Hometown. This child we will refer to as “Hometown Child.” The other two children live several hours away.
Mr. Planner has a Will that provides for his entire estate to be divided equally 3-ways amongst his children upon his passing.
Most of Mr. Planner’s assets are in the form of cash or investments; we will refer to these as his “Accounts.”
Mr. Planner receives advice from a friend that he should add his children to all of his Accounts as joint owners with “right of survivorship.” Mr. Planner is told that if he does this he will avoid “probate tax” that would otherwise be payable on the value of his Accounts upon his passing.
Mr. Planner thinks this sounds too good to be true, so he seeks the advice of his lawyer.
Mr. Planner’s lawyer advises him of the risks of adding Hometown Child to his Accounts as a joint owner, such as potential creditor claims or divorce issues, loss of sole control of his finances, introducing conflict between his children, and potential income tax consequences. Mr. Planner quickly realizes that the implications of adding his children as joint owners of his Accounts is not as straightforward as his friend made it seem.
Mr. Planner’s lawyer also provides some calculations, for example, of the “probate tax” that would be payable if no children are added as joint owners to the Accounts, and it turns out that the amount of the “probate tax” is not as large as he thought it would be. The lawyer cautions Mr. Planner to consider the potential risks carefully, before making a decision.
Now Mr. Planner is confused by this contradictory information. Unsure of what to do, Mr. Planner decides to ask his children what they think.
Not surprisingly, Mr. Planner’s children are of the opinion that steps should be taken to avoid any amount of “probate tax” upon his passing, and all of them agree that the risks outlined by his lawyer are unlikely to be an issue in their family.
Mr. Planner decides that he needs to add children to his Accounts as joint owners in order to avoid “probate tax” upon his passing.
Mr. Planner has a closer day-to-day relationship with Hometown Child. Due to geographical distance, Mr. Planner does not spend as much time talking with his other two children as he does with Hometown Child. As well, Hometown Child has personal experience with the local financial institutions where Mr. Planner holds his Accounts.
Because of this, Hometown Child urges Mr. Planner to add only Hometown Child’s name to the Accounts, stating that it would just be more convenient and less of a hassle than trying to coordinate the other two children. Hometown Child also reassures Mr. Planner that Hometown Child will follow Mr. Planner’s wishes and treat the other two children fairly and equally in dividing the Accounts upon Mr. Planner’s passing.
Mr. Planner proceeds to take steps to add only Hometown Child as joint owner on all of his Accounts. After doing so, Mr. Planner does not make an appointment with his lawyer to review these developments, or to update his Will.
Some years later, Mr. Planner passes away. Recall that Mr. Planner’s Will provides that his estate is to be divided equally amongst his three children.
It is important to note however, that essentially all of Mr. Planner’s “estate” will not actually fall within the wishes contained in his Will, prima facie. Instead, the majority of Mr. Planner’s “estate” is in his Accounts, which at his passing were owned solely with Hometown Child as joint owner, with “right of survivorship.”
In the years after Hometown Child was added as joint owner to all of Mr. Planner’s Accounts, Hometown Child’s personal relationship with the other two siblings deteriorated to a point where they do not get along.
Now that Mr. Planner has passed away, Hometown Child has a change of heart and now feels that Hometown Child is the sole rightful owner of all of the Accounts. Hometown Child is reluctant to share any monies from the Accounts with the other two siblings and does not cooperate in providing them with any information regarding the Accounts.
Unfortunately, a long period of quarrelling ensues between the siblings. Sides are taken. Fingers are pointed. Threats are made. In the meantime, Hometown Child has been dealing with the monies in the Accounts as if Hometown Child is the sole and rightful owner, and no monies are distributed to the other two children according to Mr. Planner’s Will.
The other two children retain a litigation lawyer, and a lawsuit is initiated. What follows is a long and arduous process, that results in much anxiety and disgruntlement between the children of Mr. Planner. Of course, none of this is what Mr. Planner ever intended, and it is a very unfortunate result, to say the least.