Joint tenancy is a popular estate planning tool. If you own an asset jointly with another person or persons, when you die (assuming you die first) your interest in the asset will pass to the surviving joint tenant(s) by right of survivorship. Because the asset does not pass through your estate, its value will be excluded from the calculation of probate fees, and creditors will not have any claims against it. Joint tenancy also avoids claims made under the wills variation provisions of the Wills, Estates and Succession Act.
Joint tenancy works well where all joint tenants have made substantial contributions towards the asset. It is, for example, common in first marriages for spouses to hold real property, investments, bank accounts, and vehicles jointly. In other relationships (such as parents and children) where the primary intention is to avoid probate fees, problems can arise. For example:
- You will no longer have sole control over the asset. In the case of real property, you will need the cooperation of the other joint tenant should you wish to sell or mortgage the property. If you change your mind, you cannot later unilaterally cancel the transfer. In the case of joint bank accounts or investments, the other joint tenant will have unrestricted access to the funds.
- The asset may be subject to claims of creditors and separating spouses of the other joint tenant.
- In the case of real property that is not the principal residence of the new joint tenant, ownership will give rise to unanticipated capital gains tax when the real property is later sold in a rising market.
- In the case of investments or real property that is not your principal residence, you may trigger some capital gains tax upon the transfer to the joint tenant. This could mean that you will have to pay tax even though you have received no funds from the joint tenant.
Disputes can arise where a parent has put an asset into joint tenancy with one of her children to avoid probate fees, trusting that the child will do the right thing and distribute the asset among her siblings when the parent dies. Unfortunately the child may, after the parent’s death, decide that the parent really wanted her to receive the asset outright, and refuse to share the asset with her siblings, giving rise to litigation.
Disputes can also arise where a parent intends that the child receive the asset outright when the parent dies. The law presumes that an adult child who contributes nothing toward the property holds her interest on a resulting trust in favour of the contributing owner or her estate. The burden is on the child to prove that the parent intended a gift.
Joint tenancy can be an effective and inexpensive part of an estate plan, but it is important to obtain good legal advice to consider whether other estate planning tools, such as a trust, might be preferable.
If you do decide to use joint tenancy, it is critical that you document your intention clearly, either by way of your will or in a separate document, so that your chosen beneficiaries are not left defending the ownership of the asset, with the ultimate outcome in the hands of a judge.
If you have any questions about creating a joint tenancy or require other estate planning advice, we would be pleased to assist you.