This page is about joint ownership of assets (houses and savings) for probate and estate disputes
For information on ‘beneficiary designations’ click here.
For information about joint ownership in estate planning click here.
Joint ownership with a right of survivorship is not the same as ownership by tenants-in-common: the difference is explained here
General principles of joint tenancy/joint ownership of property
Ownership in “joint tenancy” is very different from “tenants-in-common” with very different legal consequences.
When real estate is owned by two or more owners as ‘joint tenants with a right of survivorship’, title to the property does not ‘pass’ on the death of a co-owner. The deceased co-owner simply ‘drops off title’ and the surviving co-owner(s) remain(s) on title.
The same principle applies to ‘joint bank accounts’ and ‘joint investment accounts’ (joint ownership is not the same as a beneficiary designation for a registered account such as a RRSP, RRIF or TFSA – more about beneficiary designations here.): the deceased joint owner simply drops off ownership, leaving the survivor the sole owner.
Find out the true ownership with a title search
The way to confirm how title to your house or cottage is registered, is with a title search. Unless you are certain, do not guess, as the consequences of being wrong are very serious for all aspects of estate planning and estate settlement.
Switching from sole ownership to joint tenancy
A common estate planning ‘step’ is to place a house owned by one person (the sole owner), in joint tenancy with someone else.
This can work well in some cases, but it comes with very signfiicant risks and can be a complete disaster. Proceed with caution.
Joint tenancy with a spouse will trump a Will. So, in the case of second (or third) marriages and blended families, a joint tenancy with the spouse will often deny the children of the first spouse to die any inheritance.
Joint tenancy between a parent and their adult child has many risks. See below for more.
Moving title to a property from sole ownership to joint tenancy is a disposition for tax purposes and must be reported. This disposition may result in a taxes being payable. Even in the case of a property that qualifies for the ‘principle residence exemption’, the disposition should be reported and the exemption claimed when title is transferred. Failure to comply with this can have significant adverse tax consequences, and is a very common mistake made by people trying to use joint tenancy to avoid probate taxes.
How to switch title from joint tenancy to tenants-in-common
In Ontario, title to a property held in joint tenancy can be converted unilaterally by any joint tenant to tenants-in-common. The joint tenancy is ‘severed’. The process for doing this is a relatively straigthforward filing of a severance of the joint tenancy by a real estate lawyer for the joint tenant. Costs are usually modest.
It is common to sever joint tenancies when the relationship between the joint tenants breaks down.
A severance of the joint tenancy is often a preliminary step along the road to forcing a sale of the property by way of a ‘partition and sale’. As a result, generally speaking, joint tenants are not required to remain joint tenants, and joint tenants can unilaterally convert ownership to tenants in common, and often can unilaterally force the sale of the property.
It is also relatively common to sever a joint tenancy for estate planning purposes, especially in ‘blended families’, and whether or not the relationship between the joint tenants is good or has broken down.
Because the joint tenancy can be severed unilaterally by any joint tenant without notice to the other joint tenant(s), a joint tenant can be surprised when their co-owner dies to discover that they do not ‘own’ the entire property but only one share. This is why title searches are so important.
Property put into joint tenancy cannot be taken back
Once a property is in joint tenancy, a joint tenant cannot ‘unilaterally take back ownership’ of the property. As discussed above, if a property is placed into joint tenancy, any joint tenant can sever the joint tenancy and create ownership as tenants in common but no one, even if the original sole owner, can unilateraly demand that they get back sole ownership. Thus, a parent who puts a property in joint tenancy with an adult child cannot change their mind and demand back sole ownership of the property.
Joint tenancy to sole ownership after death of one co-owner
For real estate in Ontario, when one joint tenant dies, the ownership is changed by registering a ‘deed of transmission’, on title. This removes the deceased joint tenant from the title and lives the remaining joint tenant(s) as owners.
Registration of a deed of transmission requires little more than an original or notarized copy of the death certificate. Probate of the estate is not required. This can normally be done by a real estate lawyer at modest cost.
Note that the tax treatment is different from the legal treatment of title: for tax purposes, a joint tenant is deemed to dispose of their interest in the property on their death for fair market value (subject to a roll-over being claimed). This disposition must be reported, and if an exemption such as the principle residence exemption, or a roll-over (for instance a spousal roll-over) is available, these should be claimed in the terminal T1 return of the deceased.
Joint ownership and creditors/bankruptcy of one co-owner
As a general rule, if a co-owner ‘goes bankrupt’ or is sued by a creditor before they die, then their ‘share’ of the property is included in their assets – and this share must be ‘sold’ (to the co-owner(s) or third parties) for fair market value to pay debts of the bankrupt/debtor. This is one of the biggest risks of putting property in ‘joint tenancy’ with a spouse or child, and it is the reason that may entrepreneurs are not owners of their own family homes.
If a joint tenant dies with debts, generally it is not possible for their creditors to make a claim against a property the deceased is are no longer an owner of. Therefore, if a property was held by the deceased as a joint tenant, the deceased’s ‘share’ is no longer available or attackable to pay the deceased’s debts.
Conversely, if a tenant-in-common dies with debts, then their creditors can claim against the deceased’s share of the property must be used to pay the debts.
Note that the registration of a lien (for instance by CRA, a municipality, or condominum corporation) can make the debt enforceable against the property even after the death of the debtor.
For this reason, creditors are highly incented to take steps to collect from debtors and to register liens against property co-owned by the debtor, before the debtor dies.
Joint ownership / joint tenancy with an adult child
Estate law in Ontario presumes that a financially independent adult child who co-owns an asset with their parent holds it in trust for the parent’s estate.
This is called The Rebuttable Presumption of Resulting Trust.
The presumption of resulting trust applies to all real estate and most unregistered savings and investments.
The presumption of resulting trust applies to real estate (houses, cottages, etc.) that are held by a parent with a financially independent child in joint tenancy.
It also applies to savings accounts jointly held or owned by a parent and their financially independent adult child.
The presumption of resulting trust does NOT apply to properties held as tenants-in-common.
The presumption of resulting trust usually does not apply to plans with designated beneficiaries such as RRSPs, RRIFs and TFSA.
The presumption of a resulting trust is rebuttable.
It is still possible for the adult child to prove that the deceased intended to give the property exclusively to that adult child, but the onus of proving this gift on a balance of probabilities rests on the adult child. Generally, clear and compelling evidence that corroborates the evidence of the adult child is required. This can be in writing from the deceased or from third parties other than the adult child. A simple oral statement from the joint child owner that “mom wanted me to have this money” is unlikely to be sufficient to rebut the presumption.
Note that different rules apply inter vivos gifts (gifts while alive) and thus an outright right of 100% ownership of a property, or a gift of a tenancy-in-common will be treated very differently.
In summary, on the death of the parent, real estate and bank accounts jointly held with an adult child do not automatically pass to the child who is the joint owner, and likely should be disclosed in the probate application (EAT paid accordingly) and distributed among the beneficiaries of the estate.
This presumption is relevant to estate law only – it does not apply to tax law, family law, or debtor-creditor law. CRA, or the co-owner’s ex-spouse or other creditor is entitled to take the position that the co-owner truly is a co-owner of the property.
If you are affected by a joint tenancy claim by an adult child of the deceased
If an adult child claims joint ownership of assets with their deceased parent, the estate will be reduced. Sometimes the reduction is dramatic (especially with houses and large savings accounts).
The key for all parties is documentation (letters, emails, bank documents, etc.) –
- did the parent document an intention to gift the asset?
- what is the asset, where is it located, and how much is it worth?
- when was the joint tenancy established?
- did the deceased receive legal advice at the time?
- did the deceased consider the joint ownership when making their will?
- has the adult child joint owner refused to treat the asset as an estate asset?
The more documentation, the quicker and easier it is for us (and a Court) to address the issue.
These disputes are usually best handled by commencing an “Application for Directions” asking the Court for a ruling on whether the jointly owned asset is held in trust by the adult child for the benefit of the beneficiaries of the estate of the deceased parent. Learn more about Applications here. The key is to toss the burden of proof on to the adult child and to force them to prove that they are entitled to the money.
It is important to avoid dealing with these issues by way of trial if at all possible, because trials take much longer to schedule than applications and are a much more expensive proceedings.
We have considerable experience assisting with these circumstances by commencing court proceedings to force resolution as quickly as possible, including conducting a number of these cases ‘on success’ (contingency).
Please contact us for a consultation on your circumstances.