Maple Ridge, B.C. V2X 2V6
The
Benefits and Dangers of Joint Tenancy
One
of the most frequent questions I am asked as a Notary Public, is “what is the
most efficient way to hold property to avoid having to pay probate fees?” While
the answer may be registering your home as Joint Tenants with another person,
typically a spouse or child, it could have significant legal ramifications.
What is the difference between Sole
Ownership, Tenants-In-Common and Joint Tenants?
Sole Ownership: can be characterized
as ownership by a single individual who has complete control of the property
who is not obligated to seek consultation or authorization of any other
individual in any dealing(s) of the property. In the case of real estate, a
home can be registered solely in one person’s name as the sole owner. However
upon the owner’s passing, the house will form part of the deceased’s estate and
will be distributed according to the individual’s directions in the Will –
subject to probate fees.
Tenants-In-Common: allows two or more persons
to hold property in different proportions. For example, a husband who has previously
owned property and a wife who has never owned a principal residence may
register their home as tenants-in-common, whereas the husband holds 1%
ownership and the wife holds 99% in order to take advantage of the property
transfer tax exemption.
A
noteworthy consequence of tenants-in-common is that each individual’s share of
the property becomes a part of the owner’s estate on death. Thus, the
individual’s share of the property will be distributed to the beneficiaries
named in the deceased’s Will – subject to probate fees. It does not pass on
death to the other individuals on title to the property. A common scenario where this type of ownership
is utilized is with blended families where a husband and wife may hold property
as tenants-in-common together, allowing each person to gift their share of the
property in their Will to their own biological children as a means of ensuring
their own children are protected upon their passing.
Joint Tenancy: must be owned by two
or more persons in equal proportions with an equal right to use the whole
property. Joint tenancy has a unique element of “right of survivorship” in
which upon the death of a joint owner, the deceased’s share of the property
automatically reverts to the surviving joint owner. By passing directly to the
surviving joint tenant, the property does not form part of the estate and it is
not subject to probate. It is important to note that since the property is
passing outside of the estate it does not pass under the Will, consequently it
is not distributed among the beneficiaries named under the deceased’s Will.
Joint Tenancy vs. Probate
Legal
professionals, financial advisors and estate planners may recommend registering
property as Joint Tenants as part of the estate planning process.While this method of ownership can be effective
in avoiding probate fees, there are a number of risks and drawbacks from this
ownership. Homeowners should carefully consider the following potential
unintended consequences before registering their home in joint tenancy with
other persons.
Ability
of creditors to seize an interest in the property. If the person added to title
incurs financial difficulties, the debts of the individual can be attached to
the property. For example if you put your child on title and your child has
debts to Canada Revenue Agency for unpaid income taxes his or her creditors
could have a claim against the estate and may try to seize the child’s half
share of the property.
Claim
of ex-spouses if the person added to title later divorces or separates. The
ex-spouse of the person added on title may consider the home as an asset to be
shared in their separation.
Capital
Gains Tax. If the person being added on title does not live at the property as
his or her principal residence the equity acquired during the time he or she owns
the property
may be subject to capital gains tax at 25%.
Property
Transfer Tax. If the property is not a principal residence or the individual
being added to title is not a related party, the property being transferred is
subject to property transfer tax at 1% on the first $200,000 and 2% on the
remainder above $200,000.
Unequal
distribution to family members. If a parent adds one of their children on title
and subsequently passes away, the child inherits the parent’s share of the
property and upon the parent’s death, he or she does not have to share the sale
proceeds with any siblings.
Loss
of Control. Joint ownership entitles each owner on title to equal entitlement,
profits and loss. However, as equal owners, in order to sell, mortgage,
refinance or transfer the property, agreement and signatures of all co-owners
is required.
Ability
to Sever the Joint Tenancy. If an individual adds their common law spouse on
title to become joint owners, the spouse may at any later date, without the
knowledge of the other person, sever the joint tenancy and turn ownership into
tenancy-in-common and gift their share of the property to an undisclosed spouse
or child.
While joint tenancy could be an
effective technique to avoid probate, it comes with numerous associated risks
and dangers. Homeowners should evaluate these potential complications, against
the costs and time involved with probate. In order to make an informed
decision, it is essential to educate and familiarize yourself on probate fees.
Probate Fees
Probate fees
are a provincial tax levied on the gross value of an estate at the time
application is made to the Supreme Court for probate. Probate is triggered when the gross
value of the deceased’s estate is $25,000 or greater. The probate fee is
calculated as follows:
Administration Filing Fee of $208
plus:
|
$25,000-$50,000
|
$6 per $1,000 or portion (0.6%)
|
|
$50,000 and over
|
$14 per $1,000 or portion (1.4%)
|
For
example, on an estate valued at $700,000, the probate filing fees would be
approximately $9,458.00.00:
Basic
Fee $208.00
Additional
Fee(s) $25,000-$50,000 $150.00
$50,000-$700,000 $9,100.00
$9,458.00
Probate Fees are payable on assets
which are part of the estate. Probate fees are not collected on assets passing
by right of survivorship through joint tenancy ownership. Thus, the critical
effect of joint ownership is that on the death of a co-owner, the deceased’s
interest automatically passes to the surviving joint tenant without incurring
any probate fees.
Homeowners must educate themselves to make an informed
choice to determine what is best for their personal situation and estate
planning goals before adding a person on title jointly merely to avoid probate.
While adding a loved one on title may seem like a simple solution to avoid
paying legal and probate fees, the legal ramifications of joint tenancy
ownership need to be carefully considered. Ultimately seeking legal and tax
advice of a professional can help in assessing all factors and personal
situations to determine whether the benefits of a joint tenancy outweigh the
risks and potential complications that may arise.
**The information provided above is for
educational and informational purposes only. This is not legal advice and is
not to be relied upon as legal advice. If you have any questions or concerns,
contact a legal professional.**
