It has become very popular in British Columbia to transfer property (assets) into joint tenancy. This is usually done as a vehicle to reduce probate fees and legal fees upon the death of the owner of the property. Generally speaking, if the joint tenancy is between husband and wife, it is a good idea because it simplifies matters and also it saves money. It is then a fairly simple procedure to transfer property from a deceased joint tenant into the name of the surviving joint tenant(s).
When other parties, such as children, are added to the title, difficulties can arise. Some of the problems are outlined below:
Gift or Trust?
If property is transferred from one parent into the names of the parent and one of the parent's children, it could become an issue as to exactly what interest the child holds in the parent's property. If the interest is solely held for estate planning purposes and there was no real intention to gift the property to the child, then the child would hold the property in trust for the parent and the parent's estate.
An obvious situation where this becomes a problem is where the most substantial asset of the parent is put into the name of one child and the parent and there are a number of other children. It could have been the intention of the parent that the one child who held the property in joint tenancy would then transfer the property to the other children upon the parent's death. If the transfer is not made to the other children, a court will have to decide what the parents' intentions were. Not an easy task for a judge. This scenario creates many problems and is not recommended as an estate planning vehicle. If you specifically wish to exclude a child from your estate by a transfer to joint tenancy to another child, there should be a written declaration of your intention to make a gift.
Other difficulties occur when the parent wishes to get the property back or mortgage the property and the child or children refuse to make the transfer. If there has been an out-and-out gift, the children do not have to transfer the property back to the parent. Often children will object to mortgages being placed on the property because it could affect their inheritance.
You should be aware that if property is transferred into joint tenancy with a child, to outside observers searching government registries the property would appear to be owned by the child. If the child becomes bankrupt or has a judgment from, say, an impaired motor vehicle accident, then the child's portion of the joint asset can be attacked by creditors. Spousal claims in divorce actions could also be a problem. The issue would then be whether the child in fact owned the property or was simply a trustee (see above).
If there has been a true gift of property to the joint tenant adult child, the income tax authorities will consider the property disposed of for fair market value. A personal residence could lose part of its tax-exempt status. If one-half a personal residence was gifted to one child and the property then appreciated, one-half the appreciation of the child's share would be a capital gain to the child on the sale of the property. Disposition of other capital items such as shares or recreational property could trigger capital gains even if the transfer is a gift to an adult child. The parent will have to pay the tax, which will be far more than any probate fee.
Loss of Control
Any joint tenant owner has an equal right to use of the property. At any time before or after your death the surviving joint tenant adult child (or possibly grandchild with the child's consent) can move into the property. The property cannot be sold without the agreement of all owners unless a court order is obtained. This means your executor loses control over who lives in your property and when it is sold.
Unexpected Survivorship Consequences
If one of the joint tenants dies before or after you, the deceased joint tenant ceases to own an interest in the property because their interest in the property transfers to the surviving joint tenants. If a joint tenant adult child with children dies, the property will not transfer to their children. It will transfer to the surviving joint tenant(s). Also, a joint tenant can change the title to tenants-in-common (no survivorship) or sell their share at any time.
In general I do not recommend that property be transferred into the names of children as joint tenants with their parents. I think it is important that seniors maintain their independence by owning their own assets. The probate fees are not so high as to outweigh the disadvantages of adding children as joint tenants. If you still want to do this you need to obtain specific advice. There are legal means to allow you to transfer your property into joint tenancy with some protection, but this must be done on a case-by-case basis and legal advice is necessary.
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