Reviews and recommendations are unbiased and products are independently selected. Postmedia may earn an affiliate commission from purchases made through links on this page.
By Julie Cazzin with Andrew Dobson
Q: I have a joint investment account with my wife Diane that she would be able to access upon my death. I have another investment account in my name only that holds my stocks and bonds. What are the tax implications related to that account upon my death? Would it be possible to turn that account into a joint account with my wife now? Are there any tax implications if that is done? — Raymond in Picton, Ont.
FP Answers: Raymond, an investment account solely in your name can be transferred to your wife on a tax-deferred basis upon your death. Generally, unrealized capital gains would not be triggered by the death of a spouse, and the assets would transfer to the surviving spouse at their adjusted cost base. The tax-deferred transfer could happen if you hold the account jointly or if your spouse is a beneficiary of your will.
Your executor can also elect to have some of the capital gains taxed on your tax return if it is advantageous to do so. This could be the case if you have tax deductions or tax credits to use up, or if you have a relatively low income in your year of death. The default, however, is that capital assets such as stocks, mutual funds, exchange-traded funds, real estate and similar assets transfer at cost to the surviving spouse.
During your lifetime, you should consider the income attribution rule when transferring funds between spouses, including adding them as a joint account holder. The attribution rule prevents a high-income spouse from gifting cash or other assets to a low-income spouse for the purpose of paying less tax on the future income.
If you add your spouse’s name to a joint investment account with the intent of splitting income between your two tax returns, that income may be taxable back to you due to attribution rules. This income would include investment income such as interest, dividends and realized capital gains.
Even though the attribution rule limits a potential tax advantage from splitting income, that does not mean you cannot make an account joint for estate planning purposes. You may add your spouse to your non-registered account, which would provide them with a legal ownership interest in the assets, but not beneficial ownership for tax purposes. You could continue to report 100 per cent of the income on your tax return even though the account is turned into a joint one.
If you and your wife both have individual non-registered bank or investment accounts, you can consider making them all joint accounts. 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 (let’s say her name is Debra) onto your investment account, and the account would say Raymond and Debra on the statements and tax slips. If Debra has a savings account in her name, you could turn it into a Debra and Raymond joint account, with her name first. For beneficial ownership and, therefore, tax purposes, you would report 100 per cent of the income on the first account holder’s tax return.
A joint account does not need to be reported equally on your tax returns. Technically, if you have made unequal contributions to the account, the account could, as an example, be 75 per cent reported by one spouse and 25 per cent by the other.
There are several potential benefits to holding all assets jointly, including easier administration of the assets during your lives, especially as you age. Joint ownership also generally allows immediate access to funds when one spouse passes away. Otherwise, an account may be frozen while the executor settles the estate, which typically involves legal, probate and other estate administration costs.
FP Answers: What’s the most tax efficient way to draw down my $5-million investment portfolio?
FP Answers: Should I take CPP at age 60, even though I only have a small pension and no other investments?
FP Answers: Do I really need 70% of my working income to retire comfortably?
FP Answers: Can I save tax by transferring an investment property to a corporation?
In terms of ease of access, a financial institution will generally transfer joint investment and bank accounts into the name of the surviving spouse after providing a copy of a death certificate. For individually held accounts, it is possible that funds may not be accessed for several months, depending on the estate settlement process.
Probate fees vary by province. Some provinces charge low flat fees, while others charge a percentage fee based on the aggregate value of the deceased’s estate. Joint ownership of an asset may bypass the probate process since ownership would pass directly to the survivor.
Some accounts, such as registered retirement savings plans and tax-free savings accounts cannot be held jointly. But these accounts can avoid probate by naming a beneficiary or successor holder, such as your spouse.
To sum up, Raymond, there may be immediate tax considerations when adding your wife’s name to your investment account. But there are some benefits to having your assets held jointly with your spouse, especially from an estate planning perspective.
Andrew Dobson is a fee-only/advice-only certified financial planner (CFP) and chartered investment manager (CIM) at Objective Financial Partners Inc.
For more stories like this one, sign up for the FP Investor newsletter.