Joint Accounts, Registered Investment Accounts, and Resulting Trusts – Who Gets the Money?
It is often clear how funds in an account under the sole name of a deceased person at the date of death are to be divided. An executor or trustee must look to the Will or the rules of intestacy and make distributions accordingly, subject to the myriad of other estate rules and the advice of counsel. Matters get murkier with funds in an account that was held jointly between the deceased and an adult child on the date of death. Registered investment accounts, such as Tax-Free Savings Accounts (TFSAs), Registered Retirement Income Funds (RRIFs), and other investment schemes, designating someone other than the deceased as a beneficiary may complicate things further.
Joint Bank Accounts/Resulting Trust
Even after death, the law presumes that joint bank accounts belong to the person who created the account, deposited the money, and used or directly benefited from the funds during their lifetime. Despite a joint account holder receiving the money on the death of the other joint account holder, the funds in that account might be held in a “resulting trust”, making it part of the deceased person’s estate. Equity presumes bargains, not gifts. The presumption of resulting trust applies to accounts jointly held by an adult child of deceased individuals, but not spouses or minor children of deceased individuals.
A resulting trust is presumed on joint bank accounts between adult children and parents because an adult child can help monitor and manage their parent’s money as they age. When the parent dies, the court presumes that anything left in the account belongs to the parent’s estate. Therefore, the court will begin with the presumption that the parent’s intention was for the money to remain with their estate and not be a gift, unless a contrary intention can be established.
Rebutting the Presumption
An adult child joint account holder is not necessarily without options. The court will award the survivor the remaining funds in a joint account if the survivor can prove that this is what the deceased person intended. Proving this intent can be challenging, especially if the Will does not mention the account and there is little other documentary evidence of an intention to gift the remainder. For joint accounts, the adult child trying to keep the money must “rebut” the presumption by proving a contrary intention of the deceased.
Beneficiary Designations on Registered Accounts
Historically, registered savings accounts have been treated differently from joint bank accounts due to their beneficiary designation mechanism. When someone dies who had, for example, a TFSA, the designated beneficiary of that account would typically receive the remaining funds directly from the bank. In other words, those funds would not become part of the deceased’s estate upon their death.
Calmusky v Calmusky
Surprisingly, the Ontario decision named Calmusky v Calmusky recently applied the presumption of a resulting trust to a Registered Income Fund (RIF). In Calmusky, one of two sons was the designated beneficiary to his father’s RIF. When his father died, the court treated the RIF like a joint account between a parent and an adult child. Thus, the first son tried to prove that his father meant for him to have the remaining money in the RIF. The second son argued that even though the first son was the designated beneficiary for the RIF, his father had intended for the RIF to belong to the estate. After considering the evidence, the court sided with the second son. The court reasoned that the father, having claimed all of the interest of the RIF on his income tax return and having only ever used the RIF money for his own expenses, likely intended for the remaining funds to belong to his estate when he died. Since the presumption of a resulting trust has now been applied to registered investment account, beneficiaries of registered investment account should be prepared to defend their claim to those accounts. Moreover, bank documents that have been used to identify entitlement to those funds may no longer be enough.
A Departure from Calmusky; It’s All About Intention
Conversely, Ontario courts commented on Calmusky in a case called Mak (Estate) v Mak and found that a resulting trust should not automatically apply to registered investment accounts. In another case, Dixon v Spencer, the court was uncertain what kind of account the disputed funds were in. In that instance, the court did not decide whether the presumption of a resulting trust should apply. Instead, the court wrote that whether the presumption applied or not made no difference since the facts showed that the deceased’s intention had been to gift the disputed funds.
Takeaways
The lack of clarity in the law emphasizes the importance that both joint account holders and designated beneficiaries keep as much documentary evidence as possible to prove the intention of the deceased. The mere designation of a beneficiary on an account may not convince a court of an entitlement to the funds, especially if the deceased’s conduct or documentation suggests otherwise. In Calmusky, the court wrote that the TD bank document “clearly provid[ing] TD with the authority to pay out the funds to the designated beneficiary upon the RIF owner’s death” still did not prevent the funds from constituting part of the deceased’s estate.
Some factors the court may consider as evidence of the deceased’s intent include bank documents, the amount of control and use the adult child had over the account, and the tax treatment of the account. This list is non-exhaustive as the court has the power to consider any evidence it wishes in making up its mind.
Examples
Below is an example of how resulting trusts can affect the total inheritance for estate beneficiaries and joint account holders. This is a heavily simplified scenario that assumes that the estate has no debts, expenses, or taxes to pay, no legal fees to consider, and no executor’s compensation payable. The example also assumes that there are no dependent support claims or spousal elections to consider. The example is meant to be demonstrative rather than realistic.
3 children of the deceased and a Will that divides residue equally to the three surviving children.
Joint account with Adult Child A: $200,000
Account solely in the name of deceased: $400,000
The only living parent of three children (Child A, Child B and Child C) has a Will that divides the residue of their estate equally amongst the children. When the parent dies, the entirety of their estate consists of two accounts: a joint account with Child A containing $200,000, and an account solely in the deceased’s name, containing $400,000. If the court presumes a resulting trust of the joint account, the $200,000 in that account will constitute part of the estate and be divided evenly. Therefore, the total value of the estate upon death is $600,000 and is distributed as follows:
Child A: $200,000
Child B: $200,000
Child C: $200,000
On the other hand, if the court finds the joint account’s remainder to be a gift to Child A, then Child A will keep the $200,000 in the joint account and also inherit pursuant to the Will. In this case, the estate’s value is only $400,000 split between the three children and the result is as follows:
Child A: $133,333.33 plus $200,000 that was in the joint account for a total of $333,333.33
Child B: $133,333.33
Child C: $133,333.33
This example demonstrates that whether the presumption of resulting trust applies can drastically affect the total inheritance for the beneficiaries involved. Joint account holders such as Child A in the example above have an incentive to argue against a resulting trust to avoid sharing the joint account funds with anyone entitled to a portion of the estate. Other beneficiaries of the estate will typically be incentivized to advance a resulting argument to increase the value of an estate and therefore their inheritance. A lawyer will be necessary to advance arguments for either side of a conflict involving a resulting trust.
Interaction with Dependent Support Claims and Spousal Elections
In addition, some claims against estates, such as dependent support claims and spousal elections, can strike at joint accounts, funds transferred by beneficiary designations, and life insurance payments. For example, even if a survivor on a joint account proves that the funds in that account are not held in trust for the estate because they were intended to be a gift, a dependent may still access those funds if “inadequate provision” was made. Learn more about dependent support claims and spousal elections elsewhere on our website.
Free Consultation
Katzman Estate Law offers free consultations for resulting trust cases. We can be reached at 1-844-602-4242. On your first call, you will have an honest conversation with an estate litigation lawyer about whether you may be successful with your case.
We have offices in Windsor, Chatham, Sarnia and the Greater Toronto Area, but also have the technological resources to represent anyone for an Ontario matter.
