Joint Ownership – The Ugly Truths

When I meet with clients on corporate, conveyancing or other legal matters, they almost invariably ask me about wills and estates. Clients often hope that they have no estate planning needs – because they have already arranged for joint ownership with their parents / children / spouses.

Joint ownership is a self-help estate planning mechanism I see regularly in the Fraser Valley, as residents are often heavily invested in real estate. The basics of joint tenancy in real estate are widely understood and it is relatively cost-effective to arrange, making it an attractive DIY estate planning approach. Regrettably, it is also often recommended by seemingly knowledgeable and trusted sources, who do not understand the negative implications of joint registration in certain circumstances.

In many cases, SEVERAL of the following drawbacks will apply to the use of joint ownership as an estate planning mechanism:

  • Taxes – Distribution as a Triggering EventWhen you transfer or sell certain assets, the proceeds of sale may be deemed to be income under the Income Tax Act (Canada) and therefore taxable.  The Act does not permit transfers at less than fair market value, unless you qualify for a specific exemption – transfering a portion of an asset to a child may therefore trigger the payment of taxes;
  • Taxes – Death as a Triggering EventWhen your asset is sold following your death, the proceeds of sale may be deemed to be income to your joint owner under the Income Tax Act (Canada).  This is common if the asset was your principal residence but not your joint owner’s principal residence;
  • Taxes – Income Attributed to Original OwnerWhen you transfer an asset to a spouse, income will often still be attributed to you under the Income Tax Act (Canada);
  • Exposure to CreditorsWhen another person is on title to your asset, their creditors may be entitled to register judgements against the asset and may even become entitled to force a sale of the asset;
  • Loss of ControlWhen someone else holds an ownership interest in your assets, you will no longer be able to sell them or refinance them without that other person’s express consent;
  • Potential for LitigationWhen multiple other parties share title of an asset, it becomes less likely that they will all agree to sell at the same time or on the same terms (both before your death and afterward). When one beneficiary is on title in order to facilitate for others, there is also a risk that they will NOT share as you wished. Even when a beneficiary does share, there is a risk that other beneficiaries will take exception to how the asset was handled, the price it was sold for or the management of the funds following a sale.

Despite these drawbacks, joint ownership can be effective in the context of a broader, well-planned approach to your will and estate distribution.