Transferring assets by way of joint tenancy is one of the most popular estate planning tools, given its relative ease and low cost of implementation. Assets which are held jointly are typically subject to a “right of survivorship”, meaning the surviving joint owner automatically inherits the asset outside of the estate. This planning tool can be used to avoid the probate process, including probate fees.
Despite the simplicity of the practical steps of transferring an asset into joint tenancy, the jurisprudence demonstrates that joint tenancy does not simply shield the jointly-held asset from falling within an estate.
A legitimate transfer into joint tenancy is a gift being made during the transferor’s life. Problems may arise where the transfer of the property into joint tenancy is challenged as to whether there is, in fact, sufficient proof that a gift has actually occurred. If the transfer fails, the result is that the property is not inherited by the surviving owner but is held by that person in “resulting trust” for the estate of the deceased owner.
In determining whether or not a resulting trust may arise from a jointly held asset, the following are some of the factors that will be considered:
- Who are the joint owners? As between a parent and an adult child, there is generally a presumption that a resulting trust arises.
- Who was the primary contributor to the asset (for example, did Mom put most of the money into the bank account held jointly with daughter?)
- What was the intention of the person making the transfer/gift?
- How was the account used during the owners’ lifetimes (for example, only to cover Mom’s expenses and only at the direction of Mom)?
When preparing an estate plan, part of the discussion must consider these jointly-held assets, and should preferably include written direction of the transferor regarding her intentions.
If you are preparing your estate plan, we can assist. For further inquiries on this topic and advice about estate planning, please contact Ingrid M. Tsui or one of our lawyers in our Wills, Estates + Trusts Practice Group.