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<< back to all ArticlesDemystifying Joint Tenancies: How to Avoid Common Pitfalls
Spouses, partners, and even parents and their children sometimes consider buying houses or land together. While this might be a good idea, there are important legal consequences you should keep in mind before buying real property (like land or houses) with someone else.
In a previous blog post, we discussed joint ownership of bank accounts. In that post, we described the “right of survivorship”, a legal term that means the surviving owner is entitled to the jointly owned property (in that case, the bank account) after the other owner passes away. The same principle applies to real property, if the owners own “as joint tenants”. How would you know if you co-own land in this way? Check your copy of title. Under the names of the owners, Land Titles will be marked “as joint tenants”. If that is there, that provides with it a right of survivorship.
What are the upsides to a right of survivorship in land? If you and your spouse jointly own a house, that house will automatically flow to the surviving spouse when one of you passes away. This is a quick and easy transfer of Land Titles, and can often be done without the assistance of a lawyer. You do not need to use a Will or get a Grant of Probate for this transfer, since the right of survivorship creates an automatic transfer, usually just using a Death Certificate. So, there are certainly upsides, often in marriages, to holding land as joint tenants – a quick, easy, and cheap transmission to the surviving owner. In addition, this keeps the property out of the estate. If the estate is insolvent, or has creditors, the house is not available to them as it passes to the joint owner.
However, there are downsides to doing this as well, which should always be kept in mind. One danger in jointly owning property is liability. When you jointly own property, you are exposing yourself to more liability. If your joint owner has a court judgment against them (such as in a divorce or car accident), your property might be at risk. If your co-owner goes bankrupt, the same might happen. It is their asset too, and their creditors might try to seize it to pay your co-owner’s debts. Another risk is unexpected taxes. Transferring can trigger a “disposal” for tax purposes, or create intended capital gains consequences if people now own more than one property.
As noted above, property in a joint tenancy does not go into someone’s estate – it goes to the co-owner. Imagine a scenario where your Will says everything goes to your children, but you have added your new spouse to the title. When you die, the house transfers to the spouse, and so the Will does not apply. Your children may feel this is unfair, especially when your new spouse dies, and the house is now in their estate, not yours!
Control of the property is another possible problem. For example, say that you want to add your adult child to your farm property, to avoid needing a Grant of Probate. You do so, then you realize you need to sell the farm to pay for your continued care. You now need your adult child to consent to the sale, or even to a mortgage, as they are a co-owner. We have had files in our office where parents sue their child for the return of the property – a time-consuming and expensive endeavour!
To complicate matters, there is another way one can co-own property – this would be as “tenants-in-common”. This is the default if your Land Titles Certificate says nothing after the co-owners’ names, but is often denoted by people having an “undivided interest” in the property (for example, A as to an undivided 1/3 interest, B as to an undivided 1/3 interest and C and D as joint tenants as to an undivided 1/3 interest).
Importantly, tenancies-in-common do not come with a right of survivorship. When a tenant-in-common dies, their percentage (in the above example, 1/3) flows into their estate and goes to their beneficiaries. This is often how siblings hold interest in a cabin, because they do not simply want the survivor of them to inherit it all, but to pass their share down to their children.
The bottom line is: consider co-ownership of property carefully. Get both legal and tax advice before doing it, and consider carefully how it fits into your estate plan. Doing it right can result in a smooth transition to your beneficiaries, but doing it incorrectly, or for the wrong reason, can result in unanticipated headaches that we want you to avoid!
This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.
