Joint Tenancy And Estate Planning In Canada

There is no death tax per se in Canada, but there are probate taxes that arise on death if the will has to be probated, that is formally certified by the Court as the deceased’s last will.

The most popular self-help, estate planning tool for probate avoidance is putting beneficiaries on as joint tenants, on your house or bank account or investment account.

Typically, I tell my clients not to do it.

Problems with Joint Tenancy

One pitfall is that the child you put on title with you may have credit problems and that leaves your home open to attack by the child’s creditors. Or, the child may have marital problems. If the child is married, the asset that is shared with you may be subject to a possible claim by the spouse upon the separation of your child and his or her spouse

Let’s look at a situation where an individual owns her home and she has her daughter and son-in-law move in with her. The daughter is on as joint tenant with her mother. What happens if the daughter dies first? The Ontario law states that where a couple is living in a home as a married couple and one of the spouses owns that home with another joint tenant, that joint tenancy is deemed to be severed. In this situation, where mom and daughter owned this home in joint tenancy, that joint tenancy is deemed to be no more and now mom is co-owner with the son-in-law because the daughter died first. That wasn’t the intention of the parties. The intention of the parties was that mom would die first and then the home would go to the daughter. Children can die before their parents and in that situation you have to be very careful.

If you have your son or daughter on as a joint tenant and they own another house, you may be giving up some of your principal residence exemption for capital gains. In Canada there are no capital gains on the principal residence, but an individual can only have one principal residence. In an example where mom gives 50 percent of the house to her daughter and her daughter has her own home, 50 percent of mom’s home loses those capital gains’ exemptions from the time the daughter goes on as a joint tenant. It’s important to consider all the tax consequences before the house is sold.

It’s not always a home that people use the joint tenancy for. Some clients have non-registered stock portfolios and investment accounts where they’ve added a child as a joint tenant. When you put someone on as a joint tenant, the government views it as if you are making a gift. If those stocks have gone up in value, you’re going to trigger some capital gains tax just by putting your son or daughter on as joint tenants. It’s a good idea to get some legal and accounting advice before making the decision to do this.

This past May, the Supreme Court of Canada made two decisions on the same day that affect joint tenancy. The Court examined situations where a parent has funds in the bank or an investment account and puts an adult child on as joint tenant but the child contributes nothing to the asset. In these cases, when the parent dies, that joint account doesn’t automatically go to the adult child. It is presumed that the child is really holding the parent’s money in trust for the estate. If people are using this technique and they intend to make a gift to that child, they have to get some legal advice so that they can make it clear either in their Will or in a separate document that they intend it as a gift. If they don’t declare it as a gift, the law says it’s not really a joint tenancy and the funds will fall back into the estate.

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If you, or someone you care about, is dealing with estate law issues in the Markham, Ontario Region, contact Charles B. Ticker for a consultation.

This article is taken from a November 21, 2007 interview with Charles B. Ticker, Estate Lawyer with Charles B. Ticker Law Office, a Markham, Ontario Wills and Estate Law Firm. This article and website provide general information on legal and related matters and should not be relied upon as legal advice. If you require legal advice, you should consult and retain qualified legal professionals in your area to advise you about your particular situation and the law in your jurisdiction as laws vary from province to province, state to state and country to country.