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Joint Ownership, Estate Planning, Probate

Probate fees or estate taxes (if any, depending on the province) are charged by the province in which the deceased resided, if the estate goes through the probate process.

Topics covered here include much more than just probate fees:

Assets Excluded From Probate

Bare Trusts

 - Bare Trusts Exempt from Trust Reporting Requirements for 2023 - New March 28, 2024

 - Multiple Bare Trusts With Same Trustee and Beneficiary

Named Beneficiaries, Jointly Held Assets

Multiple Wills / Secondary Wills

Joint Ownership of Assets

 - Common-Law Couples and Joint Accounts

 - Joint Accounts With Successor Accountholders

 - Co-Ownership Agreement - Very Important!

Beneficial Ownership vs Legal Ownership

 - Beneficial Ownership - Residential Property - Title Held by Someone Else

 - Pecore v. Pecore Taken Too Far?  RIF  With Named Beneficiary Goes To Estate

Things Can Go Wrong With Joint Tenancies

 - Family of BC Lottery Winner Goes to Court

 - Petrick (Trustee) v. Petrick

Probate Fees by Province

TaxTips.ca Resources

Assets Excluded From Probate

The following items are excluded in determining the value of the estate for purposes of probate:

    1. assets held in joint tenancy with right of survival - when one person dies, the asset is automatically owned by the surviving joint tenant(s), as long as the joint tenants have beneficial ownership, not just legal ownership. Note that if a joint tenant or legal owner (person on title) does not have beneficial ownership, this is a "bare trust". Bare trusts are required to file a T3 tax return now under new trust reporting requirements, with the first due date being April 2, 2024.

    2. assets with named beneficiaries or successor holders, such as life insurance policies, RRSPs or TFSAs.

Bare Trusts

If a joint tenant or legal owner (person on title in the case of real estate) does not have beneficial ownership, this is a "bare trust". Bare trusts are required to file a T3 tax return now under new trust reporting requirements, with the first due date being April 2, 2024. Penalties for not filing are very high.

To quote a tax professional who was quoting a tax lawyer, "You likely have a trust unless every beneficial owner is on title and everyone on title is a beneficial owner". A beneficial owner is entitled to their share of the proceeds of sale if the asset is sold.

If the bare trust asset in joint tenancy is residential property, an Underused Housing Tax Return must be filed by April 30th of each year, with penalties of $5,000 per individual per property for not filing. For 2023, regarding 2022 property status, the penalties will be waived if the return is filed by April 30, 2024. The 2023 UHT return is also due by April 30, 2024, but NOT for specified Canadian partnerships, private corporations and trusts, according to the revised definition of excluded owner for 2023 in form UHT-2900.

A few examples related to real estate, but there are many more:

1. Parent who puts adult child on title for estate-planning purposes only, no beneficial ownership transferred. The residence is the primary place of residence of the parent.
2. Adult child who puts parent on title for financing purposes only, no beneficial ownership transferred. The residence is the primary place of residence of the adult child.
3. Trust which holds residential property in trust for the beneficiaries.

Most people don't even realize they may have a bare trust situation. These don't just exist with real estate. An in trust investment account is a bare trust, and many other types of bank and investment accounts are bare trusts, if one person on the account is not a beneficial owner.

Tax Lawyer Anna Malazhavaya of Advotax Law has created a Basic Guide on Bare Trusts for Canadian Taxpayers which helps to explain how to determine if a bare trust exists.

Video Tax News has a webinar available: Expanded T3 Reporting Rules: Changes and Traps. For tax & accounting practitioners: A brandable letter for distribution to your clients is included with the course, communicating trust reporting changes with a focus on bare trust arrangements.

Canada Revenue Agency (CRA) has published New trust reporting requirements for T3 returns filed for tax years ending after December 30, 2023.  Note that this means tax years ending on December 31, 2023 are included in the new trust reporting requirements. The deadline for filing these returns is March 31st each year, March 30th in a leap year. With March 30, 2024 falling on a Saturday, the deadline for the 2023 tax year is April 2, 2024, the first business day after the deadline. A trust account number should be applied for long before this deadline.

For information on how to file the T3 trust return see the T3 Trust Guide on the CRA website.

Bare Trusts Exempt from Trust Reporting Requirements for 2023

On the last business day before the T3 filing due date, Canada Revenue Agency announced that bare trusts would be exempt from filing these reporting requirements for the 2023 tax year, unless CRA makes a direct request for these filings.

This announcement is better late than never, but it would have been much better had the government not passed legislation without a thorough examination of the consequences of the legislation. Taxpayers, accountants and tax lawyers have expended massive amounts of energy and resources, and many taxpayers have paid fees to get legal opinions on whether the return was required, and to have the return professionally filed.

Unfortunately, this has become a pattern with this government, with the previous example being the Underused Housing Tax.

See CRA's bare trust debacle 'soul-crushing' from Global National.

Late T3 Trust Return Penalties - Not for Bare Trusts in 2023

The penalty for filing a T3 return late is $25 per day for each day the return is late, from a minimum of $100 to a maximum of $2,500. This is in addition to a penalty of 5% of any balance owing (should be none for a bare trust), plus 1% of the balance owing for each full month the return is late, to a maximum of 12 months. See CRA penalties and interest on late filing.

In CRA's information on Bare Trust T3 Reporting, FAQ 3.5 states:

As some bare trusts may be uncertain about the new requirements, the CRA is adopting an education-first approach to compliance and providing relief to bare trusts by waiving the penalty payable under subsection 162(7) of the Income Tax Act for the 2023 tax year in situations where the T3 Return and Schedule 15 are filed after the filing deadline for reasons other than gross negligence.

The above relief applies to bare trusts only, not other trusts, as this is the first year for which there has been a requirement for bare trusts to file a T3 trust return.

Multiple Bare Trusts With Same Trustee and Beneficiary

To quote Maureen Vance, CPA, CA tax software consultant to Wolters Kluwer, "We asked CRA the question about what to do when there are multiple investments (e.g. where an adult child is on title to their parent's home and also joint owner on their investment account) and CRA responded that a single T3 is required if both the trustee and beneficiaries are exactly the same. Note that the agent did make the point that if there were any differences (e.g. joint owner of an investment account with one parent, but joint on title to real property with both parents), then two returns would be required."

If the adult child does not have beneficial ownership, only the parent would receive the proceeds and report the disposition on their tax return if the home or the investments were sold. This is the situation with a bare trust. If the adult child would share the proceeds and report the disposition on their own tax return, they are a beneficial owner, and this is NOT a bare trust.

Named Beneficiaries, Jointly Held Assets

One caveat with having named beneficiaries for RRSPs or RRIFs:  The value of the RRSP or RRIF is included in the income of the deceased annuitant for the year of death (with some exceptions), so the estate should be planned so that there will be sufficient funds available to pay the tax on this income.  Taxes are not withheld by a financial institution when RRSPs or RRIFs are paid out to beneficiaries.  However, the beneficiary can be held liable for the income taxes payable as a result of the RRSP or RRIF amount included in the deceased's income.  See How is an RRSP or RRIF Taxed at Death?  This article indicates for which beneficiaries the income tax can be deferred.

Thus, probate fees can be minimized if registered assets (including vehicles) are held in joint names with right of survival (again, if beneficial ownership has been transferred), and if insurance policies, TFSAs and RRSPs are left to named beneficiaries (successor holder for TFSA), not to the estate.  It is necessary to use caution when naming beneficiaries to your RRSPs, because income tax will be payable by the estate on the market value of the RRSP at the time of death, unless the beneficiary is the spouse or common-law partner, financially dependent child or grandchild under 18 years of age, or financially dependent mentally or physically infirm child or grandchild of any age.  See How are RRSPs and RRIFs taxed at death, and Death of a TFSA Holder for more information.

Multiple Wills / Secondary Wills

In some provinces, having multiple wills can reduce probate fees.  One will can be prepared for the assets requiring probate, and a separate will can be prepared for the assets not requiring probate.  Talk to a lawyer or notary in your province for advice on preparing multiple wills.

Multiple wills are legal in BC.  Our thanks to a reader for passing on to us a Vancouver Sun article about multiple wills.  Although the article refers to a "loophole", at death there would still be a deemed disposal of the assets that are not subject to probate, and these assets would be subject to capital gains taxes where applicable.  The article notes "In B.C., the Business Corporations Act allows a personal representative, such as an executor, to transfer the deceased’s shares in a privately held company — a grant of probate is not necessary; a declaration of transmission, an original share certificate and the will are sufficient authority."  See. BC Business Corporations Act s. 118.

Regarding multiple wills in Ontario, see Multiple Wills - More than just business owners, by Justin Ecclestone, Estate and Trust Consultant with Scotia Wealth Management.  It discusses how multiple wills can be useful not just for private company shares, but for other assets as well.

See Multiple Wills - Their Use and Drafting Issues, a 2017 publication by Lindsay Ann Histrop of Gardiner Roberts LLP.

Revisiting the importance of language when using multiple wills, by Fasken is a lesson in how important the wording of a will can be.

Tax Tip:  A secondary will can protect private company shares and some other assets from probate fees. Get professional advice on this.

Joint Ownership of Assets

Transferring any asset, including real estate, into joint tenancy with someone other than a spouse has many potential problems, especially when beneficial ownership is transferred as well as legal ownership:

Joint ownership of vehicles not only avoids probate fees, but may also make the transfer of the vehicle less complicated.  In BC, only the death certificate is required to transfer the vehicle to the surviving joint owner.  The Insurance Corporation of BC (ICBC) has a helpful Checklist for Estate Transfers (pdf).

Common-Law Couples and Joint Accounts

The article 'Til death do us part ... the bank accounts: A warning for common-law couples, by Kristie Smith, Estate and Trust Consultant, Scotia Wealth Management, points out that there can be significant problems where an account is funded by one person but held jointly with another. The article discusses a Newfoundland and Labrador Court of Appeal case, Edgecombe v Nicholas, 2023 NLCA 19 (CanLII) where the court decided that the over $4 million in joint accounts was the property of the person who had been the common-law spouse of the deceased for over 40 years. A costly court battle could have been avoided by clear documentation of the intentions of the deceased.

Joint Accounts With Successor Accountholders

Some financial institutions have developed a type of account that leaves no question as to beneficial ownership and survivor rights.  RBC is one of those, with their Joint - Gift of Beneficial Right of Survivorship Account (JGBRS), which can have multiple successor accountholders, and avoids probate fees.

Co-Ownership Agreement - Very Important!

When property is owned jointly with someone other than a spouse, it is wise to have a co-ownership agreement in place at the start.  See the Pushor Mitchell LLP article Inheriting Property Jointly With Other Beneficiaries And The Importance of Co-Ownership Agreements.

Tax Tip: Get professional advice from a tax lawyer or Trust and Estate Practitioner (TEP) before transferring assets into joint tenancy!!!

Beneficial Ownership vs Legal Ownership

A legal owner is the person who is the registered owner of an asset

Beneficial ownership was defined in the Supreme Court of Canada case R.A. Jodrey Estate v. Minister of Finanance (Nova Scotia), 81 DTC 5344: It seems to me that the plain ordinary meaning of the expression "beneficial owner" is the real or true owner of the property. The property may be registered in another name or held in trust for the real owner, but the "beneficial owner" is the one who can ultimately exercise the rights of ownership in the property.

When a joint tenancy (joint ownership) is created, legal ownership is transferred to the new joint tenant, and beneficial ownership may also be transferred.  A "gratuitous" transfer is one where part ownership was transferred at no cost to the transferee.  When a gratuitous transfer is done, it is very important to state if beneficial ownership is transferred because if it is not stated, it is likely to be presumed that only legal ownership was transferred.  If beneficial ownership is transferred, the new joint owner has right of survivorship, so the asset is automatically transferred to them on the death of the other joint owner, without going through probate.  If beneficial ownership is not transferred, when the other joint tenant dies, the asset becomes part of the estate and will have to go through probate and be disbursed as per the instructions in the will.  Some brokerages may require a "Letter of Direction" when a transfer of funds/investments is done from an individual to a joint account.  This letter would just state that the transfer is requested, from account A to account B, and should be signed by the transferor.  It could also include details about whether beneficial ownership is transferred.  The beneficial ownership information should not be required by the brokerage, but should be documented.

A gratuitous transfer is often done by a parent with adult children.  In the case of a bank or investment accounts, it may be done so that the adult child can help manage the financial affairs of the parent.  In the case of real estate, including a principal residence of the parent, there may be many reasons this is done.  If a parent has more than one child or heir, and the property is transferred into joint tenancy with only one of the children or heirs, it is extremely important for the parent to put into writing the intention behind the creation of the joint account, indicating if the intention is to transfer beneficial ownership to the new joint owner, or just to have the new joint owner holding those assets temporarily, with eventual dispersal by the estate.  The lack of this type of documentation has resulted in many court cases.  The will should indicate whether jointly held assets that were gratuitously transferred are

A Supreme Court of Canada case, Pecore v. Pecore, deals with beneficial vs legal ownership in a joint tenancy.  Paragraph 27 of the judgment states "The presumption of resulting trust is the general rule for gratuitous transfers."  This means that the transferee (new joint tenant) is a legal owner on title, but the only beneficial owner is the transferor, who made the gratuitous transfer.  When the beneficial owner dies, the property becomes part of the estate.  The presumption of resulting trust can be challenged, and where there is sufficient evidence that the gratuitous transfer was made with the intention that the transferee should also be a beneficial owner, then the "right of survivorship" stands, and the transferee will be the owner of the entire property when the transferor dies.  This was the result in the Pecore case.

See above re Joint - Gift of Beneficial Right of Survivorship Accounts (JGBRS), which take away the uncertainty of what will happen upon death.

Tax Tips:

When beneficial owner(s) differ from legal owner(s) of a residential property, a "bare trust" can exist, resulting in the need to file an Underused Housing Tax (UHT) Return for 2022 (now due April 30, 2024), as well as a T3 Trust Return under new reporting requirements (first due April 2, 2024).

When beneficial owner(s) differ from legal owner(s) of a bank or investment account, this can result in the need to file a T3 Trust Return under new reporting requirements (first due April 2, 2024).

There are minimum penalties for not filing the UHT return, even if there is no tax payable.

Beneficial Ownership - Title Held by Different Person

In 2009, a technical interpretation, TI 2009-0324851I7 Beneficial Ownership - Residential Property, was issued by CRA which indicated that beneficial ownership of real property could be held by one person, even though legal title was held by another person.  The beneficial owner and the legal owner had sufficient documentation to prove that this was the case.

In this type of situation, the person on title is the trustee of a bare trust, and would have to file an Underused Housing Tax (UHT) Return as well as a T3 Trust Return.

Pecore v. Pecore Taken Too Far?  RIF  With Named Beneficiary Goes To Estate

A 2020 Ontario Superior Court case, Calmusky v. Calmusky, 2020 ONSC 1506 (CanLII), seems to have taken the above Pecore v. Pecore decision too far, and we'd be very surprised if this case is not appealed.  In Calmusky, the presumption of resulting trust was also applied to a RIF with a named beneficiary, so that the RIF became part of the estate instead of going to the named beneficiary.  Unresolved question:  Will this mean that the RIF is included in probate?  See the All About Estates analysis of this case, written by Demetre Vasilounis of Fasken.  As said by the author, "The court in this decision seems to be specifically focusing on beneficiary designations outside of wills, but considering that such designations can also be made within wills, it would be a best practice, in light of this decision, to ensure that the beneficiary designation includes language indicating that the designation is not to be made in trust and is for the benefit of the beneficiary."

Further to the above, see Reaffirming the Status Quo of Beneficial Designatioins: The saga of Calmusky v. Calmusky continued in All About Estates, by Tyler Lin of de Vries Litigation LLP.

Things Can Go Wrong With Joint Tenancies

Family of BC Lottery Winner in Court

Six months prior to passing away with no will, Frances Lloyd, a Parksville woman with 4 adult children won $3 million in a lottery.  She deposited the winnings into an already existing RBC account (possibly one of the JGBRS accounts mentioned above?) set up so that her daughter could make payments and purchases for her.  By the time she passed away she had given 2 of her children each $500,000.  The other 2 children received nothing, and are suing in BC Supreme Court.  See the Vancouver Sun April 2022 article on this, Late BC lottery winner's family headed to court over $3 million jackpot, by Keith Fraser, and his later June 2022 article Siblings not entitled to any of deceased B.C. mom's $3 million lottery win: Sister.

Petrick (Trustee) v. Petrick

A BC Supreme Court Case, Petrick (Trustee) v. Petrick, 2019 BCSC 1319, is a reminder that things can go wrong with joint tenancies.  The joint tenants were a mother and son, and the son transferred his interest in the property to his mother when he became financially insolvent.  The court ruled in favour of the son's creditor, that the transfer was a fraudulent transfer.  See the Miller Thomson analysis of this case.  The court decision notes that property that is held in joint tenancy can give rise to three potential scenarios in terms of the beneficial interests of the title holders:

     a) A true joint tenancy, in which the joint tenants are each owner of the whole. Each enjoys the full benefit of property ownership and the ultimate survivor will enjoy the whole title for him or herself.

     b) A resulting trust, wherein only one joint tenant has any beneficial interest in the property and the other joint tenant, usually a gratuitous transferee, holds title in trust for the other and has no beneficial interest in the property.

     c) A scenario which is sometimes referred to as a “gift of the right of survivorship,” wherein a joint tenant is gratuitously placed on title and has no beneficial entitlement to the property during the lifetime of the donor, but if the donee survives the donor, the donee will receive the entire property by right of survivorship. In Bergen v. Bergen, 2013 BCCA 492 at para. 37 [Bergen], Newbury J.A. described a gift of the right of survivorship in a joint account as “an immediate gift of a joint interest consisting of whatever balance exists in the account on the transferor’s death, assuming he or she dies first.”

TaxTips.ca Resources

Probate Fees by Province

Minimize Taxes of a Deceased Taxpayer

Canada's Underused Housing Tax - new, 2022 returns now due April 30, 2024! Affects non-residents AND MANY Canadian co-owners (partnerships), trusts and corporations for 2022, but rules have changed for 2023!  There is a minimum penalty for not filing, even if exempt from the tax.

Tax Tips:

Be very careful to properly document the intentions of any joint ownership! And any beneficiary designations!

Make sure your will has very clear instructions for dispersal of your assets!

Get professional advice from a tax lawyer or Trust and Estate Practitioner (TEP) before transferring assets into joint tenancy!!!

Revised: April 03, 2024