It can make sense to have a joint bank account or investment account with a parent in many circumstances. Some reasons to have a joint account may include:
Probate fees – Probate can be time consuming and costly, during which the assets in question are frozen. Technically, adding a child to an investment account would not make the joint account exempt from probate, but it would prevent freezing of the account which would allow the sale and transfer of the assets within the account, thus leaving nil to be probated.
Mental Deficiencies – If a parent were to suffer from dementia or any other disease that would disable them from cognitive decision-making, giving signing authority to a child would allow them to continue paying bills and handling the parent’s money on their behalf.
Travelling - If a parent decides to go off and enjoy their golden years by exploring the wonders of the world, having a child with signing authority on account will allow them to ensure the parent’s financial commitments here at home are still being kept up (ie. property taxes, utilities etc.) are still being paid and kept current.
In adding a child to a parent’s bank or investment account, there are also some important considerations that need to be looked at.
The biggest consideration is that the parent’s control over these accounts can be lost and the child has access to all of their funds regardless of their ability to manage fiscal responsibility.
If the child were to get divorced or be forced into filing for bankruptcy, the account may be exposed to the settlement of these two unfortunate circumstances hence compromising the security of mom or dad’s funds.
From a tax perspective, careful thought needs to be exercised when transferring mom or dad’s assets into a joint account with someone other than their spouse as it could give rise to capital gains.
Lastly, if the child on the account is contributing their own personal funds into the account, there could be a problem upon the death of the parent in determining how much of the account balance would be or should be shared with other beneficiaries (ie. Siblings.)
In conclusion, it’s important to understand all of the above implications and ensure you are making an informed decision when considering joint account options. Please feel free to contact us if you have any questions with respect to joint accounts.