The Pros and Cons of Joint Tenancy Arrangements

Holding property and bank accounts in joint tenancy is an effective way to reduce probate fees (the fee that is payable to validate a will in B.C.);

Most couples choose to hold their assets this way and on death the assets pass by operation of law to the survivor on title with ease; no probate fees and little paperwork. However, there are potential drawbacks.

Caution should be taken when considering this method of ownership with adult children. The joint assets are not subject to the provisions of the Will. If the joint tenancy is set up with a child, that child might not share the joint asset that passed to them on death with the other children named in the will, even if that was your intention.

If it is your intention, added evidence will be needed to ensure the gift on death is effective if another child challenges the gift. Care must be taken to ensure your desired result.

Changing from sole ownership to joint ownership is a disposition for tax purposes, even if no money changed hands. If the asset has increased in value since it was purchased, the transfer could trigger a taxable capital gain. The gain may not matter if it is a principal residence, but if it is a gain realized as a result of an increase in value of a stock portfolio, recreational or revenue property, then this may have huge financial consequences, much larger than any savings in probate fees.

If you transfer the property jointly to someone who is not a principal resident in the property, for example, an adult child, while the initial transfer may be exempt from capital gains tax because you were principally resident, any future gain on the property you transferred would be subject to capital gains tax for the non-resident owner. This gain could be very large and defeat any savings you were trying to achieve in not paying probate fees on death.

Another risk is that the property now in joint tenancy is available to the creditors of the other joint tenant.

Their creditors may register a judgment on the property. You also lose your exclusive control over the property. You cannot mortgage or sell it without the other’s acknowledgement.

If the joint asset is a joint account, the joint owner can withdraw funds without the others permission.

Holding assets jointly can be wise in certain circumstances, but beware of the potential drawbacks.