This section is presented

This section was created by the editors. The client has not been given the opportunity to limit or revise the content prior to publication.

by TD Insurance

Links to breadcrumbs

Personal Finance FP Investor Family Finance

There are some benefits to keeping your assets together with your spouse, especially from a estate planning perspective

A joint account does not have to be stated immediately in your tax return. A joint account does not have to be stated immediately in your tax return. Photo by Getty Images/iStockphoto

Reviews and recommendations are unbiased and products are selected independently. Postmedia may earn an affiliate commission for purchases made through links on this page.

Article content

By Julie Cazzin with Andrew Dobson

Advertisement 2

This ad hasn’t loaded yet, but your article continues below.

Article content

Q: I have a joint investment account with my wife Diane that she would have access to after my death. I only have another investment account in my name that holds my stocks and bonds. What are the tax consequences for that account in the event of my death? Would it be possible to convert that account into a joint account with my wife now? Are there any tax consequences if that happens? — Raymond in Picton, Ont.

Article content

FP Answers: Raymond, an investment account that is solely in your name, can be transferred to your wife on a tax-deferred basis upon your death. In general, unrealized capital gains would not be generated from the death of a spouse, and the assets would be transferred to the surviving spouse at their adjusted cost basis. The tax-deferred transfer can happen if you hold the account together or if your spouse is a beneficiary of your will.

Advertisement 3

This ad hasn’t loaded yet, but your article continues below.

Article content

Your executor may also choose to have a portion of the capital gains taxed in your tax return if it is beneficial. This may be the case, for example, if you have tax deductions or tax credits that you have to use up, or if you have a relatively low income in the year of your death. However, the standard is that capital assets such as stocks, mutual funds, exchange-traded funds, real estate and similar assets are transferred to the surviving spouse at cost.

During your lifetime, you should consider the income imputation rule when transferring money between spouses, including adding them as joint account holders. The imputation rule prevents a high-income spouse from donating cash or other assets to a low-income spouse to pay less tax on future income.

Advertisement 4

This ad hasn’t loaded yet, but your article continues below.

Article content

If you add your spouse’s name to a joint investment account with the intention of splitting the income between your two tax returns, that income may be taxable to you under attribution rules. This income includes income from investments, such as interest, dividends and realized capital gains.

While the imputation rule limits a potential tax benefit of splitting income, it doesn’t mean you can’t create a joint account for estate planning purposes. You can add your spouse to your unregistered account, which would give them legal ownership interest in the assets, but no beneficial ownership for tax purposes. You could continue to declare 100 percent of the income on your tax return, even if the account is converted to a joint account.

Advertisement 5

This ad hasn’t loaded yet, but your article continues below.

Article content

If you and your wife both have individual unregistered bank or investment accounts, consider creating joint accounts for them all. From a tracking and administration standpoint, you could be the “primary” account holder for any account that is yours for tax purposes. For example, you could add your wife (say her name is Debra) to your brokerage account, and the account would list Raymond and Debra on its statements and tax slips. If Debra has a savings account in her name, you could convert it into a joint account between Debra and Raymond, with her name first. For economic ownership and therefore tax purposes, you state 100 percent of the income on the declaration of the first account holder.

A joint account does not have to be stated immediately in your tax return. Technically, if you’ve made unequal contributions to the account, for example, 75 percent of the account could be given up by one spouse and 25 percent by the other.

Advertisement 6

This ad hasn’t loaded yet, but your article continues below.

Article content

There are several potential benefits of keeping all assets together, including easier management of the assets over your lifetime, especially as you get older. Joint ownership also generally gives immediate access to funds when a spouse dies. Otherwise, an account can be frozen while the executor is settling the estate, typically involving legal, probate and other administrative costs.

Monitors show stock market information on the floor of the New York Stock Exchange.

FP Answers: What is the most tax efficient way to withdraw my $5 million investment portfolio?

No

FP Answers: Should I take CPP at age 60 even if I only have a small pension and no other investments?

No

FP Answers: Do I really need 70% of my work income to retire comfortably?

An apartment for rent in the Rosedale neighborhood of Toronto.

FP Answers: Can I save tax by transferring an investment property to a corporation?

Advertisement 7

This ad hasn’t loaded yet, but your article continues below.

Article content

As for ease of access, a financial institution will generally transfer joint investment and bank accounts in the surviving spouse’s name after providing a copy of a death certificate. For individual accounts, funds may not be accessible for several months, depending on the estate settlement process.

Legacy fees vary by province. Some counties charge low flat fees, while others charge a percentage based on the total value of the deceased’s estate. Joint ownership of an asset can bypass the probate process as ownership would pass directly to the survivor.

Some accounts, such as registered retirement savings plans and tax-exempt savings accounts, cannot be held jointly. But these accounts can prevent probate by naming a beneficiary or successor, such as your spouse.

Advertisement 8

This ad hasn’t loaded yet, but your article continues below.

Article content

In short, Raymond, there may be immediate tax considerations in adding your wife’s name to your investment account. But there are some benefits to keeping your assets together with your spouse, especially from a estate planning standpoint.

Andrew Dobson is a Certified Financial Planner (CFP) and Chartered Investment Manager (CIM) at Objective Financial Partners Inc.

Sign up for the FP Investor newsletter for more stories like this.

Share this article in your social network

Advertisement

This ad hasn’t loaded yet, but your article continues below.

By clicking the sign up button, you agree to receive the above newsletter from Postmedia Network Inc. receive. You can unsubscribe at any time by clicking the unsubscribe link at the bottom of our emails. Postmedia Network Inc. † 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

Comments

Postmedia is committed to maintaining a lively yet civilized discussion forum and encourages all readers to share their thoughts on our articles. It can take up to an hour for comments to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We’ve enabled email notifications – you’ll now receive an email when you get a reply to your comment, there’s an update to a comment thread you’re following, or a user follows comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

This post FP Answers: What are the tax implications of joint investment accounts?

was original published at “https://financialpost.com/personal-finance/family-finance/fp-answers-what-are-the-tax-implications-of-joint-investment-accounts”

Richard