Though Tenants-in-common and Joint Tenancy terms may sound similar, their legal implications can be quite different. Being aware of both terms and their impact on real estate ownership and estate planning strategies is important.
Estate Planning Strategies: Joint Tenancy & Tenants-In-Common
In a joint tenancy, one asset is held by two or more persons. When one joint tenant ties, the asset is automatically transferred to the other joint tenant. The estate of the deceased joint tenant does not hold any rights over the asset in this case. A joint tenancy is also known as the ‘last man standing.’
If an asset is held as tenants-in-common, and an owner dies, their estate is eligible for their share of the asset. Subsequently, this share is distributed as per the terms and conditions laid down in the will or the laws of intestacy if there is no will.
When more than two individuals own any real estate property in Ontario, it is presumed to be tenancy-in-common unless specified otherwise. For a property to be held in joint tenancy, it must be explicitly stated in the asset ownership documents.
When more than one person holds assets such as financial investments, bank accounts, or motor vehicles, the nature of ownership is legally presumed to be in joint tenancy, unless specified otherwise. This legal principle is applicable to all assets except real estate properties.
Estate Planning Strategies – Legal Implications of Jointly Held Assets
Though estate plans are personalized for every person, there are a few key elements that need to be reviewed. The majority of people want to make sure that:
- their real estate properties pass on to their chosen beneficiaries
- probate fees and income taxes are minimized
- streamline and simplify the estate’s administrative responsibilities are streamlined and simplified
In a tenants-in-common type of holding, each person owns a certain percentage of the asset. For instance, if a parent and their child own a family house, a mother and a child may have a 50% share each in it. Each share would be an undivided interest in the family house that they hold as tenants-in-common. Each of the two individuals can decide to sell their 50% interest in the real estate or bequeath it to a chosen beneficiary in their will.
If one of them dies, their individual 50% share in the family house form part of deceased person’s estate. Probate fees will apply to it, and it will be distributed as per the terms and conditions laid down in the will or the laws of intestacy if there is no will.
Holding an asset under joint tenancy has significantly different legal implications. Spouses typically use it to hold assets, including but not limited to bank accounts, motor vehicles, real estate, and financial investments. When one spouse dies, the asset is automatically passed on to the surviving spouse without any significant administrative problems. Simply put, a joint tenancy creates the ‘right of survivorship.’
In a joint tenancy, the asset’s share does not form part of any estate, so probate fees are not applicable. Using a joint tenancy type of holding helps pass on the asset to the chosen individual.
Estate Planning Strategies – How to Choose the Nature of Joint Holding?
Do you wish to add your child as a joint tenant in your real estate or other investments? Though joint tenancy is a popular way to hold assets, there are other factors that you should consider before making a decision. Some aspects may arise when you add your child as a joint tenant in your property, including but not limited to:
- Choosing to transfer any interest in the asset attracts tax liability for the parent as a deemed disposition. (irrespective of the fact if the child has received any actual money or not)
- When the real property is transferred, the resultant property transfer tax will be applicable
- Any matrimonial claims or potential creditors of the child may also stake their claim to a share in the property
- Making the transfer may lead to a reduction in the principal residence exemption amount that may have been claimed by the new joint owner if they don’t reside in the house
- A parent will have to share control of the property with their child – they cannot sell or refinance the property without taking the consent and signature of the child on the requisite documentation
- In cases where the child dies before the parent, the entire purpose of choosing a joint tenancy is defeated
- There may be a situation where the parent has died and multiple children hold the property title. If a child dies, the surviving spouse will not receive anything from the asset if the asset is not a matrimonial home. Under joint tenancy, the asset will automatically pass on to the surviving siblings of the deceased. However, Section 26 (1) of the Family Law Act states that if a spouse dies owning an interest in a matrimonial home as a joint tenant with a third person and not with the other spouse, the joint tenancy shall be deemed to have been severed immediately before the time of death. This allows the surviving spouse to inherit the interest.
- It is essential to have the appropriate documentation to prove that the asset was given as a gift to an adult child; otherwise, upon the death of the parent, the assets is deemed to belong to the parent’s estate. In this situation, the sibling who was gifted the asset may need to prove that they own the asset as a beneficial owner. Proper legal documentation with a statement of intention or gift deed is vital to validate the property transfer as a gift.
Setting up a joint tenancy is simple. It is vital to understand the legal implications of every estate planning strategy. Remember to review the possible joint tenancy benefits and outcomes before using it as a tool in your estate planning.
Estate Planning Strategies – How We Can Help
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Schedule a free initial consultation with our Mississauga Wills and Estate Lawyers. Experience the professional and personalized legal guidance we give to clients to help ensure a successful outcomes.
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