The Pitfalls of Joint Accounts with Adult Children

Making an investment account joint with your child in Canada might seem like a simple way to pass on your assets, but there are several downsides to be aware of — especially around ownership, taxes, and legal assumptions.

 

One of the biggest concerns is something called the “presumption of resulting trust.” When you add an adult child to your investment account, the law usually assumes you didn’t mean to give them the money as a gift. Instead, it assumes they’re just holding it in trust for you. That means, after your death, the account may not automatically belong to your child, even if their name is on it. Other beneficiaries or family members could challenge your child’s claim to the account, leading to legal disputes and delays in settling your estate.

 

There are also tax consequences. If the investment account earns income (like interest or dividends), and you’re still the one controlling and benefiting from it, all the income will likely be taxed in your name. Just putting your child’s name on the account doesn’t split the income for tax purposes. Additionally, if the account is truly joint — meaning both of you contribute money and make decisions — it can be hard to figure out who should report which income to the Canada Revenue Agency (CRA). This can create confusion or even lead to audits.

 

Also, once your child is on the account, they legally own it with you. That means their creditors could go after the account if they run into financial trouble, or the account could be affected in a divorce.

 

In short, while joint accounts may seem convenient and at times are an appropriate choice, they can also lead to legal challenges, tax issues, and unintended consequences. It’s often better to consider other estate planning tools first, like naming beneficiaries, enduring Power of Attorney documentation or using a trust in certain circumstances.

 

Please contact us if you have any questions about joint accounts or if you would like to discuss your estate and wealth succession planning in more detail. We can help you create a customized plan to suit the needs of you and your loved ones while considering both tax and legal implications.