Sep 08, 2022
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If you’re married or have a common law partner, you probably already share a home, a favorite blanket, and a Netflix account. Creating joint financial accounts is the next step. A joint account is simply a financial account—such as a bank or brokerage account—that two or more people have equal access to. The account holders—which can be spouses or common-law partners but can also include adult children or other family members—are both able to deposit and withdraw money, issue cheques, and issue payments, just to name a few examples.
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There are various types of joint accounts offered at Canadian banks, with the most common being the chequing account. This is a regular, everyday bank account, into which both partners' wages will be paid, and which will be used for bills and shopping. You can also have an ordinary savings account, where you can both deposit money and you'll earn a small amount of interest. This is ideal if you're saving for a car, family holiday, or just for a rainy day.
Then there are specific tax-advantaged retirement accounts that play by their own rules. While you can’t jointly open an RRSP (Registered Retirement Savings Plan) account together, you can open a spousal RRSP, which allows you to contribute to an RRSP in your spouse’s or partner’s name. These contributions will then be exempt from the amount of tax you need to pay for a given year. A spousal RRSP is particularly useful for couples with disparate income levels who want to lessen their tax burden once they’re retired.
Another common retirement account is a TFSA (Tax-Free Savings Account). However, these are individual accounts and cannot be held jointly. You can, however, name beneficiaries for these kinds of accounts (including RRSPs).
When speaking of joint accounts, these two categories usually come to mind: Tenancy in common and joint tenancy. Tenancy in common describes an arrangement where an asset is owned by two or more individuals together, but without the right of survivorship. What this means is the following: Let’s say you and your spouse have a 50-50 ownership of a property under common tenancy. If your spouse passes away, their share of the property (more specifically, the value of that share) doesn’t automatically go to you. Instead, the asset in question is considered to be part of the deceased’s estate, and will be settled and distributed according to estate settlement procedures. In this case, you don’t automatically have a right to your spouse’s share.
Joint tenancy, on the other hand, means that you and your spouse or partner both own an asset together. This means that if you and your spouse have joint tenancy, their share of the jointly held asset automatically passes to you once they die, and vice versa. This process is obviously quicker and simpler, often eliminating the need for probate.
Things get a bit trickier if you have joint tenancy on an account with your adult children. In that case, your share of the account may still be considered part of your estate unless it can be demonstrated that the account and its assets were a gift from you to your child.
There are many reasons to set up a joint account, both in everyday life and estate planning. It makes dividing up bills and payments easy, with both partners being able to easily move and access money. This promotes trust between partners and means that financial responsibilities can easily be shared. If you're using a joint account to save, it keeps both partners accountable.
However, having a joint account is also relevant to estate planning. If one partner dies, the other won't be left without access to money, as the money will remain with the living partner. The funds also won't be subject to estate tax or probate fees, and your spouse or partner doesn’t have to wait for your estate to be settled in order to access the money in the account. This is one of the biggest advantages of joint accounts - the surviving partner won't have to transfer money, but can continue using the account they're familiar with.
Setting up investment accounts like spousal RRSPs is also useful for estate planning, as they allow a spouse to have access to the funds in the accounts easily and relatively.
Opening a joint chequing or savings account in Canada is easy, and many banks allow you to apply online. You may need to visit the bank to verify your ID with two pieces of photo ID. The process will be easier if you choose a bank that one or both of you already use, as they'll already have a lot of necessary information.
Setting up a joint account with a spouse is a big step, and you need to have an honest conversation and make sure you're on the same page. However, it can be the best and simplest way to deal with estate planning, as well as to manage your money on a daily basis.
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