Joint Tenancy: 5 Common Issues

It has become very popular in British Columbia to transfer property (assets) into a joint tenancy.

Usually, it is done as a vehicle to reduce probate fees and legal fees upon the property owner's death. Generally speaking, it is good to have joint tenancy between a husband and wife, because it simplifies the probate process and saves money.

Furthermore, when couples have joint ownership arrangements, it becomes a fairly simple procedure to transfer property from a deceased joint tenant into the name of the surviving joint tenants. What complicates a joint ownership arrangement is when other parties are added to the property, such as children.

5 Common Problems With a Joint Tenancy Agreement

1. Gift or Trust?

If the property is transferred from one parent into the names of the parent and one of the parent's children, it can become an issue as to exactly what interest the child holds in the parent's property. For instance, if the interest is solely held for estate planning purposes and there was no real intention to gift the property to the child, then the child would not hold the property in trust for the parent and the parent's estate.

A common situation when this becomes a problem is when the most substantial asset of the parent is put into the name of one child, but there are a number of other children. For instance, it might have been the intention of the parent that the one-child holding joint tenancy would then transfer the property to the other children upon the parent's death. If the transfer is not made to the other children, a court will have to decide what the parent's intentions were. This is not an easy task for a judge, and this scenario creates many problems. Therefore, it is not recommended as an estate planning vehicle. Instead, if you specifically wish to exclude a child from your estate by a transfer to joint tenancy to another child, you must include a written declaration of your intention to make a gift.

Another common difficulty occurs when the parent wishes to get the property back or mortgage the property, and the child or children refuse to make the transfer. If there has been an out-and-out gift, the children do not have to transfer the property back to the parent. It is common for children to object to mortgages being placed on their property because it could affect their inheritance.

2. Creditors

Be aware that if the property ownership is transferred into joint ownership with a child, to outside observers searching government registries, the property would appear to be owned by the child. For instance, if the child becomes bankrupt or has impaired judgment from an accident, then the child's portion of the joint asset can be attacked by creditors.

Spousal claims are another common problem. The issue would then be in regards to whether the child, in fact, owned the property, or was simply a trustee (see above).

3. Taxation Problems

If there has been a true gift of property to the joint tenant's adult child, the income tax authorities will consider the property disposed of for fair market value. A personal residence could lose part of its tax-exempt status. For instance, if one-half of a personal residence was gifted to one child and the property then appreciated, one-half the appreciation of the child's share would be a capital gain to the child on the sale of the property.

Furthermore, the disposition of other capital items, such as shares or recreational property, could trigger capital gains even if the transfer is a gift to an adult child. The parent would have to pay the tax, which would be far more than any probate fee.

4. Loss of Control

Any joint tenants have an equal right to use the property. At any time before or after your death, the surviving joint tenant's adult child (or potentially a grandchild with the child's consent) can move into the property. The property cannot be sold without the agreement of all joint tenants unless a court order is obtained. Ultimately, this means your executor loses control over the joint tenants. Whoever has joint ownership of the property now has a say in who lives on it and when it is sold.

5. Unexpected Survivorship Consequences

If one joint tenant dies before you do, the deceased joint tenant ceases to own an interest in the property. This is because their interest in the property transfers to the surviving joint tenants.

If a joint tenant's adult child with children dies, the property will not transfer to their children. Instead, it will transfer to the surviving joint tenants. Lastly, a joint tenant can change the title to tenants-in-common (keep reading) or sell their share at any time.

What About Tenancy-In-Common?

Tenancy-in-common is another form of property co-ownership that offers a distinct alternative to joint tenancy. Unlike joint tenancy, where each owner has an equal share and the right of survivorship over the entire property, tenancy-in-common allows property owners to hold unequal shares and does not include survivorship rights. This means that upon the death of one tenant, their share of the property can be bequeathed according to their will rather than automatically passing to the surviving joint owners.

This form of legal ownership is particularly useful in scenarios where individuals want to maintain control over their portion of the asset, or when owners wish to leave their share of the property to someone outside the group of current co-owners. It's a more flexible solution that can accommodate the varied needs and plans of property owners. It is often the better option for partnerships among friends, investment groups, or family members who do not want their share to automatically transfer to the other owners upon their passing.

In Conclusion

Ultimately, I do not recommend that property be transferred into the names of children as joint tenants with their parents. It is important that seniors maintain their independence by checking their own assets. Probate fees become lower to outweigh the disadvantages of adding children as joint tenants, as well.

However, if you still want to do this, it is recommended that you seek professional advice. There are legal means to allow you to transfer your property into a joint tenancy arrangement with some protection, but this must be done on a case-by-case basis.