Joint Tenancy and Your Residence
Many homes have more than one person on the title to the property. Confusion often arises over what it means to co-own a piece or property, and the implications that it can have in the future. Spouses may own a property together with the objective of having it pass automatically to one of them if the other dies or parents may put their children on the title to the parent’s home in contemplation of avoiding probate fees.
The terminology in this area of law can become confusing. The general term for two or more people owning property together is “co-ownership”, and each person who has their name on the title to the property is a “co-owner”. Co-ownership of property also involves the terms “tenancy” and “tenant”, but in this case these terms have nothing to do with landlord and tenant law or leases. There are two main legal forms in which people can co-own a piece of real estate.
The first form is called tenancy in common. In this form the tenants in common each own a percentage of the property, and this percentage of ownership does not necessarily have to be equal. Each co-owner can leave their share of the property to someone else in a will, or sell their share without the consent of the other co-owner. The property remains undivided, and each co-owner owns their interest in the whole of the property, meaning that they cannot identify a physical part of the property that corresponds to their share.
The British Columbia Property Law Act s.11 creates the presumption that when two people are registered on the title to a property, they hold the property as tenants in common with a 50-50 ownership split. This is only the default and can be overridden by stating a different ownership structure in the document that transfers the property to the co-owners, and thereby creating the second legal form of co-ownership.
The second form of co-ownership is called a joint tenancy. In a joint tenancy, each co-owner holds an equal share of the whole property. If one of the co-owners dies, then their share passes automatically to the other co-owners in the joint tenancy. The interest in the property cannot be left in a will because by the time the will takes effect, the interest has already been absorbed by the remaining joint tenants. This legal mechanism is known as a “right of survivorship”, and it is the primary reason that many people want to co-own their home with their spouse or children. Unfortunately this arrangement can also create potential legal problems, and I will explain some of these problems in this article.
The first problem with joint tenancy and with co-ownership in general, is that a co-owner’s share can be seized by their creditors if the co-owner falls into debt. This creates a serious issue if you put your child on the title to your house in order to avoid probate fees and your child then becomes unable to pay their debts. Creditors could seize your co-owner’s interest and you could find yourself in the unfortunate situation of co-owning your property with a creditor. There have been cases where this happened and the creditor then went to court for an order that the property be sold and the proceeds distributed to the creditor and the other co-owner in accordance with their respective share of the property.
The second problem with joint tenancy is the potential tax liability. In Canada there is a tax exemption for your principal residence so that you can sell your home and not pay taxes on any capital gains. If one of the co-owners does not live on the property, then they will not qualify for the tax exemption. Having your child or other person who does not live with you on the title can be a real problem. If you later decide to sell the property, someone may end up owing capital gains tax on the increase in value of their share of the property.
Another problem with joint tenancy is that because the property passes outside of your will, there is no control over what happens to the property in the event of your death. The other joint tenants will absorb your share. This has resulted in some people using joint tenancy to get around the Wills Variation Act and disinherit children or relatives who would otherwise have had the opportunity to go to court and apply to have the person’s will varied. The downside to this arrangement is that if you are intending the property to ultimately go to someone other than your joint tenants, then you are relying upon your co-owners’ good will in honoring your wishes.
A final problem with joint tenancy is that many people do not realize that by putting joint tenants on the title they are in reality giving away a part of their interest and giving up sole control over the property. It is all well and good to say “my son is just on the title for legal reasons”, but in reality after the son is put on the title as a joint tenant, the parent can no longer sell or mortgage the property without the agreement of their son. It is important to consider the future implications of adding someone to your title in light of your relationship with that person and your plans for the property in the future.
Ultimately it can be a useful estate planning tool to co-own your property in a joint tenancy. You can potentially avoid the long wait and legal costs associated with obtaining probate, and you can also avoid the probate fees payable on the value of your house. However, joint tenancy also has serious drawbacks that you should consider. Your individual circumstances can determine whether or not it is worth it to have a joint tenancy, and if you are considering adding a spouse or child to your property title, we would be happy to provide you with advice on your specific circumstances.