If you are thinking of adding your child’s name to your property jointly, then you should familiarize yourself with the potential legal consequences of doing so.
Firstly, you need to be aware that the law in British Columbia recognizes two very different forms of property co-ownership.
The first is tenancy in common, whereby each owner has a specific percentage ownership. When you die, your percentage of ownership passes through your estate and is distributed according to your will.
The second form of property ownership is called joint tenancy. Unlike tenancy in common, every joint owner must have an equal share of the property. All decisions regarding the property must be made collectively and there is also a right of survivorship. This means that when one property owner dies, the property will transfer directly to the surviving owner, and will not form part of the deceased owner’s estate.
Joint tenancy ownership may allow you to avoid paying probate fees. Probate fees refer to the amount of money that will need to be paid out from your estate before your property can be distributed through your will. The amount payable is up to 1.4% of the value of your estate.
While this may seem like a smart cost saving measure, it is important to understand that joint tenant ownership has specific legal consequences.
The law in British Columbia essentially considers owners in joint tenancy to be the same person. This means that decisions about the property have to be made collectively. If you add your child to the title of your property in joint tenancy, and decide later you want to sell, mortgage, or otherwise deal with the property, you can no longer do so without your child’s permission.
If you add your child’s name to your property as a joint tenant or as a tenant in common, Canada Revenue Agency may deem the transaction to be a disposition of the property. Canada Revenue Agency may tax the deemed disposition as if you transferred a portion of the property to your child at fair market value. If you transfer your principle residence into joint tenancy with your child, you may lose the benefit of the principle residence exemption.
Once your child is placed on title to your property as a joint tenant, they are considered to own the property in a portion equal to your own. This opens up 50% of the interest in the property to potential legal claims against your child. Potential claimants can include unpaid creditors, and separated spouses.
As noted above, if one joint tenant dies, the right of survivorship means that the property passes to the surviving joint owners. If you and your children own a piece of property as joint tenants and one of those children dies before you, the property will revert back to surviving owners in equal portions. This could be a problem for any potential grandchildren you may have, as grandchildren are not legally entitled to the property once is has reverted back to you.
The law in British Columbia contains a legal presumption called the presumption of a resulting trust. This means that if you transfer a portion of your property to your adult child at no cost, the law will assume you meant for your child to hold that property in trust for you and, upon your death, for your estate. The presumption can be overturned, but there will need to be some evidence that shows you truly intended to gift the ownership of the property to your child. There are some steps you can take to ensure your intentions are clearly made out.
Transferring partial ownership of a property in joint tenancy with your children may have certain cost advantages such as the avoidance of probate fees. However, if any legal issues arise from the resulting co-ownership then the cost of going to court can often far exceed the benefit.
Before you make any decisions regarding joint tenancy ownership, it is important to sit down with a lawyer to discuss a plan that works best for you.
~Roberta J. Stewart