Often an elderly person, or person who is in need of some financial management assistance, adds an adult child or family member to a pre-existing bank account, making it a joint bank account.
Commonly there is no paperwork made when this is done, such as the elderly person indicating, in writing, whether:
- the intention is only for assistance in managing the accounts funds, such as paying bills, etc.
- compensation is to be received by the added person
- if the elderly person dies, if the funds remaining in the account are to be a gift to the added person and pass to that person by joint survivorship
In fact, often there is nothing in writing verifying the arrangement, which regularly creates conflict and, sometimes, litigation between the person who is added to the account and the elderly person’s family members, usually after the elderly person passes.
If you are added to a pre-existing joint bank account, for example, you could be assuming a fiduciary duty to the person who adds you, which brings with it duties at law that expose you to claims by others.
What is a fiduciary? Generally, the legal definition is:
a) a person who has scope for the exercise of some discretion or power;
b) a person who can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests; and
c) the other person (the beneficiary) is vulnerable to or at the mercy of the fiduciary holding the discretion or power.
The person added to the account can face allegations in a lawsuit that:
(i) the person added, who is often an adult child, had or acted in a fiduciary relationship to the elderly parent (in the management and operation of the joint account);
(ii) the person breached that fiduciary duty by, for example, making payments to himself or herself, or making payments that had some benefit to that person in some way;
(iii) the added person should be held liable to repay the amounts for breach of fiduciary duty and breach of trust;
(iv) the added person should be required to provide a full accounting for the management and operation of the joint account, repay money paid to himself or herself, damages for breach of trust and fiduciary duty and, sometimes, punitive damages are claimed, too.
There is no definitive law in Ontario about whether, for example, an adult child added to a joint bank account is automatically a fiduciary and trustee de son tort and, therefore, exposed to liability for breaching those duties, but there is authority in Ontario for this and, consequently, this risk.
What remains unclear in Ontario is whether any person who is added to a pre-existing joint bank account by another (even just to assist with financial management), but who does not contribute to the account, will be automatically determined to be a fiduciary and, therefore, held to that standard, or whether this fiduciary duty will simply apply to everyone who holds (bank) accounts jointly.
As a precaution, if you will be added to a joint bank account (by a parent, for example), there should be, in writing, a statement by the person adding you about:
- the reason and intention for you being added
- whether, on death, the account balance is to be a gift to you
- whether you are entitled to compensation for your assistance
A new case in Ontario illustrates this risk: MacKay Estate v. MacKay, 2015 ONSC 7429
An ounce of prevention is worth a pound of cure when it comes to joint bank accounts.
This WARDS PC BLAWG is for general information only. It is not legal advice, or intended to be. Specific or more information may be necessary before advice could be provided for your circumstances.
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