With increasing frequency, clients have come to me suggesting that, for estate planning purposes, they should hold their property jointly with a sibling or an adult child. While there are benefits, there also risks associated. And, what you might have heard someone else has done, might not suit your wants, needs or circumstances.
Pros of Joint Ownership
1. Administrative Ease. A property owned jointly is generally very easy to transfer by filing one form and a certified copy of a death certificate with the Land Title Office.
2. Not Part of Estate. A jointly held property is deemed to transfer immediately prior to the death of the surviving owner. As a result, the property is not considered part of the deceased’s Estate so no Probate fees are levied on the value of the property.
3. Other Financial Benefit. When transferring the property, the joint owner does not have to pay Property Transfer Tax, or the “PTT”, the tax payable on the transfer of land titles in BC.
Cons of Joint Ownership
Often, the client considering joint ownership views the transfer as a future gift and assumes the joint owner will “do what I want”. This view overlooks the fact that they are transferring a legal interest in the property to another person which has possibly unforeseen implications.
1. Circumstances Change? Sole Control is Gone. Joint ownership means you give up sole control of the property. What if your personal circumstances change? If you meet someone new and you would like that person to own your “home” with you? Or, if one of your children comes upon financial hard times and you want to help out? If your primary asset is your jointly owned property, you will require your fellow owner to co-operate with your restructuring or refinancing goals.
2. Creditor Attacks. If the new joint owner has significant debt, creditors may obtain a Court Order and file a judgment against his interest in the property. Your bank may have a problem with these judgments being registered. You may also face hurdles when renewing your mortgage or re-financing the property.
3. Relationship Problems. Your daughter is great, of course, but you were never quite sure about your son-in-law. When that marriage disintegrates, the interest you transferred to your daughter will most certainly be claimed as a family asset by your son-in-law as part of divorce proceedings.
4. Honouring Your Wishes. You name your eldest child as joint owner, with the understanding that she will “take care of her siblings” so you draft a Will dividing your other property equally. What if your daughter decides, after you die, to keep the property? Subject to a pricy Court challenge, she is entitled to it as the surviving owner. While you may be certain that your child would never disrespect your wishes, financial and marital pressures can cause people to act out of character.
These are some general points to consider. We have not even touched on whether the net savings you realize are worth the risk (yes, there are legal and other costs to structuring your joint ownership). The appropriate decision will vary from case to case based on situation-specific facts. So, don’t rush to save some future dollars or try to make things easier without weighing whether those benefits actually outweigh the risks.
As seen in SNAP Coquitlam. Check in each month for further useful tips from the legal world.
For a free legal consultation to discuss your business, real estate, employment, or estate matters, contact:
Jason D. Jakubec
Lawyers West LLP
Main Line: 778-588-7051
Toll Free: 1-888-988-7052