Jointly Owned Property In Estate Planning

Real estate is often the most valuable asset that we own. How we own it is crucial for both estate planning and estate administration.

There are three main ways that individuals own real estate in Ontario. They are:

As the sole owner.
As a joint tenant with a right of survivorship with at least one other person (referred to as Joint Tenancy)
As a tenant-in-common with one or more other people (Tenants In Common).

Joint Tenancy: A Closer Look

Joint tenancy simplifies the transfer of property upon one joint tenants death. There’s no need for probate and the deceased’s share does not ‘fall into’ or ‘belong to’ their estate.

Quite simply, a joint tenant will ‘drop off title’ when they die leaving the surviving joint tenant(s) as the owners. All that is needed to remove the deceased from title is an original death certificate and the assistance of a real estate lawyer.

Note however that this means that what the Will of the deceased may or many not say is irrelevant to ownership of the jointly owned property.

This is a common misconception. Folks will hold a property (often their house) in joint tenancy, and then make a Will and think that the Will establishes who will inherit the house. This is not good planning at all. Legal title to the real estate will belong to the surviving joint tenant. If, but only if, the surviving joint tenant is deemed to hold the property ‘in trust for the estate’ of the deceased will the real estate ultimately be distributed in accordance with the Will. This should only be relied on in special cases.

Using joint tenancy to avoid probate can work very well for married spouses. Using it with someone else – for instance with an adult child – can be extremely risky, and should only be done with the advice of a qualified lawyer.

Note also that joint tenancy can create substantial risk while all joint tenants are alive, with respect to the creditors of any joint tenant having a claim against the equity in the property. For instance, if a widow makes title to her home joint with her adult son, if that son has challenges with creditors (a business partner or former spouse, for instance), then the creditor can make a claim against son’s share of the equity in the house.

Another significant concern is income taxes. When a home is occupied as the principal residence of the deceased then usually any gains in value of the house are exempt from capital gains taxes. Eligibility for this exemption from tax can be lost if a non-resident was a co-owner of the property duirng the period when it increased in value. .

Tenancy in Common: Customizing Ownership

Tenancy in common offers a different approach, where each owner’s share is distinct.

The presumption is that tenants in common own equal shares. This presumption can be displaced by clear notation on title. So for instance, it is possible for 3 tenants in common to own 50% 30% and 20% respectively of a property.

Each tenant in common’s ownership share of the property will fall into their respective estates and will be dealt with by the terms of their Will (or if they do not have one, the laws of intestate succession – the Succession Law Reform Act in Ontario – which specifies ‘who gets what’ when there is no Will.)

Probate will usually be required for the estate of each tenant in common.

Estate Planning with Jointly Owned Property

Estate planning usually works well with married spouses who do not have children from prior relationships. It is quite risky without great care for almost everyone else.

For surviving spouses, it is usually NOT a good idea to try to avoid probate by putting a house in joint tenancy with anyone that the original owner does not want to inherit 100% of the property. It is naive to hope that a joint tenant will share the property with others.

For blended families, tenancy in common – often coupled with a ‘life interest’ or ‘life estate’ for the surviving spouse is often a good approach.

The Expertise You Need

Estate planning is complex. It is very easy to make large mistakes trying to avoid probate or minimize taxes.

We strongly recommend that you get thorough explanation of your choices, risks, and opportunities before making changes to ownership of your home.

It’s essential to ensure that the ownership structure of your property align with your overall estate plan. This means that your will, insurance policies, and any trusts or other estate planning instruments need to be reviewed and updated with the property ownership chosen.

Conclusion

Joint property ownership is a powerful tool in estate planning, offering both opportunities and the potential to make painful and expensive mistakes.

Whether you’re part of a traditional or blended family, seeking investment opportunities with friends, or planning for the future with a life partner, understanding the implications of joint ownership and tenancy-in-common is crucial.