December 13, 2024
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Family Law
Joint Tenancy and Estate Planning
written by / source:
Carraig Law Group
What is a Joint Tenancy and how is it different from Tenants in Common?
Both joint tenancy and tenancy in common are forms of joint ownership of property. Tenants in common are two or more people owning an undivided interest in a portion of the property which does not require such proportions to be equal. This means that each tenant in common owns their interest separately in a percentage as provided by the title of registration. This could be in various percentages such as 50:50, 60:40, 70:30, etc.
Whereas in a joint tenancy form of ownership, two or more individuals each have an undivided interest in the whole property. This means that each tenant has identical ownership to 100% of the property. In order for a joint tenancy to exist, the “four unities” must also exist where each tenant must have:
- Unity of Possession: Equal rights to use and occupy the entire property;
- Unity of Interest: Equal interest in nature, extent, and duration;
- Unity of Title: Rights must be found from the same act or document; and
- Unity of Time: Rights must be created at the same time.
The most significant difference when comparing joint tenants vs tenants in common is the effect of death on these co-ownership property rights. For tenants in common, upon death, the deceased owner’s separate share is distributed according to the terms of the deceased’s will or according to intestacy rules if the deceased did not have a will.
In contrast, when a joint tenant owner dies, the deceased’s interest in the property is extinguished and the surviving joint tenant(s) will become the owner of the property. The deceased will no longer have a “share” to pass on in accordance with the will. This concept provides joint tenants with right to survivorship.
What is the purpose of Joint Tenancy in estate planning?
There are several benefits to holding property in joint tenancy, including avoiding probate fees on the property, simplify the administration of the estate upon death, and to protect the asset from a wills variation claim under the Wills, Estates and Succession Act, R.S.B.C. 2009, c. 13 (the “WESA”)
As the right to survivorship extinguishes a joint tenant’s interest, the property does not form part of the deceased’s estate and is therefore not subject to probate. Probate fees are calculated on the value of the entire estate and holding property in joint tenancy is a method to avoid potentially significant probate fees with the inclusion of valuable real property. Additionally, as the property does not form part of the deceased’s estate, it reduces the burden of administration and is generally quicker and cheaper to transmit title of property into the name of the surviving joint tenant.
In British Columbia, the governing legislation for wills and estate is the WESA. Section 60 of the WESA provides that if a will-maker dies leaving a will that does not make adequate provision for the proper maintenance and support of the will-maker’s spouse or children, the court may make an order such that the will-maker’s spouse or children will receive from the deceased estate, which may be counter to the will-maker’s intention. One way to protect an asset from a variation claim under s. 60 of the WESA is to remove that asset from the estate by placing it into joint tenancy to pass to the intended person(s) through the right of survivorship.
Can you change a Joint Tenancy after it has been granted?
Yes, just because property was placed into joint tenancy, does not mean that it needs to remain in joint tenancy. A joint tenancy can be ended by “severance”, meaning to cut the joint tenancy which ends that form of ownership and changing it to tenants in common.
There are three typical ways to sever a joint tenancy:
- By one person’s acting unilaterally upon his or her own share (even in secret) so as to destroy the four unities (for example, by selling it);
- By mutual agreement (for example, by written contract); or
- By any course of dealing which suggests that all tenants mutually treated the property as a tenant in common regardless of property title (for example, by conduct).
The reason why severance of joint tenancy is permitted is because like any owner, a joint tenant is entitled to deal freely with his or her interest in property. However, note that dealing freely with property requires the person to be alive in order to deal freely with said property, and after a joint tenant dies, severance is no longer possible as death extinguishes the joint interest (Zeligs v. Janes, 2016 BCCA 280). For example, if a person includes a specific gift through a will, of a property that is held in joint tenancy, intending to use the will to transfer his/her “share” to another person, this is not a legally valid severance of a joint tenancy, and the intention of the will-maker will not be fulfilled. In situations like this, where the potential beneficiary is expecting a gift, may result in unnecessary litigation where this could have been done properly prior to the will-maker’s death.
This is why is important to understand the basics of joint tenancy for proper estate planning. Please note that there are other ways to sever a joint tenancy that are beyond the scope of this article, such as bankruptcy, partition, or an order under matrimonial property legislation in situations of separation or divorce.
What are the risks of Joint Tenancy?
While joint tenancy is a useful tool for estate planning, it is not without risks. Clients are sometimes advised by well-meaning financial advisors, investments advisors, relatives, or friends that they should transfer some or all their assets into joint tenancy with another person. Additionally, elderly clients may be concerned about who will manage their financial affairs if they lose capacity and may have heard that holding assets in joint tenancy with a trusted individual will permit that individual to help the client pay bills and manage investments (in situations like this, a power of attorney is likely a better approach).
As a result of this simplified view of joint tenancy, it is common for clients to transfer assets (including financial accounts), recreational or primary residences property, through quick and simple forms.
It is important to know the potential risks including:
- Loss of control over the asset, as each tenant must be involved in future decisions regarding the property;
- The asset will be vulnerable to claims against the other joint tenants. For example, creditors against the other joint tenants, or a spouse of a joint tenant in the event of a separation or divorce;
- Tax consequences including income tax, property transfer tax, and potentially other provincial taxes; and
- Intention and its effect on joint tenancy.
The first three risks are generally considered prior to registering a property into joint tenancy and evidence of intention should be documented at that time. The fourth risk is generally considered when a property was initially held solely by one party, which is subsequently transferred into joint names with another party.
While the law on this issue is complex and beyond the scope of this article, it is important to understand that intention is always key in co-ownership disputes and whether a true joint tenancy exists. A true joint tenancy is where the joint tenants each have ownership of the whole of the property as explained in the above sections, however, where intention is questionable, the result may impact the operation of a joint tenancy.
For example, when a property is gratuitously transferred into joint names with a lack of documentary evidence of intention at that time, the law presumes that the person who transferred the property from sole name to joint names did not intend to gift the beneficial interest, and only legal interest was formally transferred. Legal interest is the person who holds the title to the property, whereas beneficial interest is the person who owns the benefit or enjoyment of the property, or in other words, the value of the property. This presumption is called a resulting trust where the law assumes that the person who received a joint interest gratuitously is simply holding the property on legal title, for the benefit of the person who transferred it. This assumption will then need to be displaced by the person who received the joint interest.
Conclusion
Joint tenancy is an effective method for estate planning by excluding specific property from probate, to ease the administration of the deceased estate, and to protect from claims against the estate. However, it must be considered with care and proper documentation of intention to avoid complications that may arise in the future, or unintended consequences including an increased tax burden.
Here at Carraig Law Group LLP, we have experienced lawyers knowledgeable in estate planning, preparation of wills, and estate litigation. We offer a 30 minute free consultation should there be any issues or concerns regarding joint tenancy, estate planning, or general legal issues, please contact our offices at office@carraiglaw.com or give us a call at 778-907-1180 to schedule an appointment with one of our lawyers.