Joint Tenancy: Exploring Risks and Planning Strategies
Authored by Isabel Romeral (Farris LLP)
Joint tenancy is a popular form of co-ownership for both personal property and real estate. It offers an advantageous feature wherein, upon the death of one joint owner, the property automatically transfers to the surviving joint owner. However, to establish an effective joint tenancy, certain conditions must be met. The property must be co-owned by two or more individuals in equal shares, with identical interests and rights to use the entire property. Additionally, the four unities of joint tenancy, namely unity of title, interest, possession, and time, must be maintained throughout the ownership. While joint tenancy is commonly used in estate planning between spouses, its usage between parents and children has been on the rise. Nonetheless, it is crucial to be aware of the potential pitfalls and unintended consequences associated with this arrangement.
One of the primary risks associated with joint tenancy involves the loss of control. Joint tenants may face limitations in selling or mortgaging the property without the consent of all co-owners. This can impede individual decision-making and financial flexibility. Furthermore, joint tenancy exposes the property to potential creditors and legal claims. If the joint tenants hold both legal and beneficial interests in the property, there is a risk of creditors making claims or a spouse asserting a claim in the event of a relationship breakdown. Tax considerations also come into play, including the possibility of capital gains tax, loss of principal residence exemption, or property transfer tax if the property does not qualify as a principal residence.
To mitigate these risks, clients should consider implementing planning strategies. Proper documentation is crucial to clarify the intentions behind the joint tenancy arrangement. If the intention is to transfer both legal and beneficial interests, signing a deed of gift can confirm the true nature of the gift. Alternatively, if the intention is to transfer only legal title without the beneficial interest, a declaration of bare trust can be signed to provide evidence of this intention. Additional strategies such as executing a Limited Power of Attorney for property can help maintain control over the property.
It is also important to understand the implications of the right of survivorship in joint tenancy. This means that upon the death of a joint owner, the property automatically passes to the surviving owner(s). However, in cases involving transfers between parents and adult children, the presumption of advancement no longer applies according to the Supreme Court of Canada decision in Pecore v. Pecore, 2007 SCC 17. Instead, a presumption of resulting trust arises, where the child holds the interest in trust for the parent's estate. This presumption can be rebutted with documented evidence of the transferor's intention, highlighting the importance of proper documentation during the transfer.
Joint tenancy considerations become even more complex in situations involving blended families. If spouses in a second marriage hold property as joint tenants and both have children from previous relationships, without proper planning, the children of the first spouse to die may unintentionally be disinherited. It is crucial to have open discussions with an estate planning lawyer to understand the implications of various options and document the chosen course of action.
Joint tenancy offers advantages in estate planning, but it is not without risks and potential complications. To ensure a smooth transition and avoid unexpected issues in the future, it is essential to carefully implement joint tenancy arrangements, document intentions clearly, and consider the unique circumstances and goals of each situation. Estate planning strategies involving joint tenancy should be approached with diligence and professional guidance to achieve the desired outcomes.
For more information please contact:
Isabel L. Romeral, TEP
Phone: 604 661-9370
Email: [email protected]