Joint Tenancy as an Estate Planning Tool

Evaluating the potential risks of using joint tenancy to avoid probate fees.

Joint tenancy, a form of property ownership where each tenant holds an undivided interest in the property, faces the risk of severance, which occurs when one tenant unilaterally transfers their interest, thereby converting the ownership structure to a tenancy in common. 

It’s common goal in estate planning to minimize Estate Administration Tax (also known as “probate”) for our loved ones. If an asset is held jointly with an individual(s), that asset can fall outside of the estate and would not be subject to probate.  

“Should I add my children to the title of my home so they can avoid probate?”  

A common question, and a great one at that! With real estate making up a large portion of our assets, this tactic seems like an obvious estate planning tool and, in some circumstances, might make perfect sense. (i.e. an only child who does not have a principal residence of their own.)  

But the answer is more complex than one might think. You should proceed with caution before moving forward with this decision.  

In the case of Jackson v. Rosenberg, 2023 ONSC 4403, the potential risks of joint tenancy are highlighted through legal scrutiny. This case underscores the importance of clear intentions and understanding among joint tenants, as disputes over severance can arise, leading to protracted legal battles. 

Specifically, the plaintiffs argued that a mortgage taken out by one of the joint tenants without their consent amounted to severance, thereby disrupting the unity of interest essential to joint tenancy. 

Conversely, the defendants contended that such actions did not sever the joint tenancy and should not affect the property's ownership structure. 

This case exemplifies how ambiguities surrounding joint tenancy can lead to legal entanglements, necessitating judicial intervention to clarify ownership rights and responsibilities. Moreover, the court's decision sheds light on the intricacies of property law and emphasizes the necessity of comprehensive legal advice to mitigate the risks associated with joint tenancy arrangements.

Let’s review the potential risks of adding someone to the title of your home for the purposes of avoiding probate:

Loss of Control: Once the joint tenancy has been established, the parent can no longer cancel the transfer if they change their mind. The joint tenancy can only be severed, which means that the right of survivorship would not be applicable on any owner’s death. The property would then be subject to probate on the deceased owner’s portion. Further, the sale or mortgage renewal could not be processed without the signature and agreement of the child.

Tax: In most cases, the child will not be eligible to claim the house as their principal residence. This can result in significant income tax consequences. In this case, the child becomes legally liable to pay capital gains tax when the home is sold, from the date the child was listed as a joint tenant.

Exposure to Creditors: Arguably the most concerning is the risk to potential creditors.  Not only can the child use the property as collateral for new loans, the child’s interest in the property may be subject to the claims by the child’s creditors. Further, if the child is married and the property is used for family purposes, it could be subject to claims by the child’s spouse in the event of a marital breakdown.

Death: If one child passes away before the parent and there are other children on title, on the death of the parent, the asset would pass only to the surviving children on title.  As a result, the family of the deceased child would receive nothing, which was not likely the intention. 

Intention: You need to be clear as to whether you truly intend for the property to pass to the surviving owners on title or if you want the property to be divided according to your Will. The law presumes that the adult child is holding the property in trust for the parent.  In other words, the property would be deemed to be part of the parent’s estate upon their death unless sufficient evidence is provided to confirm the parent’s intention to truly gift the property. If you intend for the property to pass to the surviving owners, you need to ensure to leave sufficient evidence of your intention to gift the property to the child.

In conclusion, when compared to the potential risks of joint tenancy, probate fees may be a small price to pay.

Case Law References:

Jackson v. Rosenberg, 2023 ONSC 4403