June 15th 2022
When considering estate planning, many believe that it will be advantageous to hold assets jointly with their children. This would usually mean either adding children on title to their home, and sometimes also opening joint bank accounts with them. This method has some advantages, and several disadvantages, which will be discussed in this article.
When a property is owned jointly, it creates a right of survivorship, which means that the surviving owner will inherit automatically when the other owner passes away. This avoids the need to apply for probate for these assets, and the associated delays and taxes. Since the home is likely to be the bulk of many estates, avoiding paying 1.5% Estate Administration Tax may seem quite valuable. Despite this, it should not be done in most cases. Below are some reasons joint tenancy will not be right for you.
The first and most important reason is the potential loss of control, especially with regard to bank accounts. Where real property is held jointly, if a dispute arises between joint tenants, it may require a court order to be resolved. If one of the joint tenants loses capacity without a properly prepared power of attorney, it may become impossible to sell or refinance the property. When bank accounts are held jointly, one of the owners could simply withdraw the funds, leaving the other(s) with nothing.
The “First Dealings Exemption” may also allow you to avoid probate altogether even without a joint tenancy. If you have owned your home since before the conversion from the Registry system to the Land Titles system, and only ever added/removed your spouse from the title, you maintain the right to transfer without dealing with probate. Adding your children to title nullifies this right, for no benefit.
Further, if people were to pass away in the “wrong order”, joint tenancy can also create significant complications. If a child predeceases their parent, this may have the effect of disinheriting the grandchildren, who might have otherwise benefitted from a per stirpal distribution. If all beneficiaries predecease the original owner, and First Dealings is lost, it will inadvertently subject the property to probate. If all joint tenants die simultaneously, all of their estates must be administered prior to the asset being sold.
By sharing ownership of the property, you also share liability. If one of the joint tenants has a court judgment issued against them, the entire property could be affected.
Lastly, there is the risk that if the joint tenancy is poorly structured, it will still be deemed to be a trust on behalf of the estate, rendering all of this effort meaningless.
The best way to ensure your estate is well planned is to consult the assistance of a lawyer. If you are considering how to plan your estate, be sure to reach out to Liddiard Law.