Understand the pitfalls of this common estate planning strategy
Joint ownership with right of survivorship is a common way to try to avoid probate and reduce probate fees, especially in provinces with higher costs. But adding a spouse or adult child to your accounts isn’t always as straightforward or as helpful as it might seem – and it may come with some significant risks.
Understanding joint ownership and getting the right advice can help you avoid surprises, complications, and costly mistakes in your estate plan.
How joint ownership works
Joint ownership means an asset is owned by more than one person. It comes in two main forms:
1. Joint ownership with right of survivorship
When one owner dies, their share automatically passes to the surviving owner(s). The asset bypasses the estate and isn’t governed by the will. Because it can be done relatively easily and, in some cases, without engaging legal counsel, transferring assets into joint ownership (e.g., joint investment accounts and joint bank accounts) is a common strategy for estate and incapacity planning.
The concept of co-ownership in Quebec
Co-ownership in Quebec exists under the form of tenancy in common, whereby each co-owner has an exclusive right to their interest in the property. Under the Civil Code of Quebec, Quebec does not recognize joint tenancy with right of survivorship. Furthermore, Quebec does not impose any probate fees. If the will is notarized, no judicial probate is required. Wills that are not notarized must be probated, which incurs minimal fees.
2. Ownership as tenants-in-common (no right of survivorship)
Joint ownership without a right of survivorship is commonly referred to as “tenants-in-common”. Each owner holds a separate share (not necessarily equal) that can be sold, transferred, or left to someone in a will. There is no automatic transfer at death to other owners. The exception is in Quebec where it is not possible to have a right of survivorship.
Why some people use joint ownership with right of survivorship
Joint ownership is often used to simplify estate or incapacity planning because it can:
- Allow assets to transfer quickly to a beneficiary, avoiding the delay of waiting for the estate to be administered
- Potentially reduce probate fees, especially in provinces or territories with higher rates of probate if applicable
- Provide privacy, since the asset doesn’t flow through the public probate process if applicable
- Save on executor and legal fees (executor fees often based on the value of the estate)
- Potentially protect assets from claims against the estate
While this can be helpful, especially between spouses, it can get tricky when joint ownership is used between a parent and an adult child – especially if you don’t understand all the implications.
The pitfalls: What you need to know
1. Unexpected tax consequences
Adding someone as a joint owner may trigger a deemed disposition for tax purposes at that time, which can result in immediate capital gains to the original owner. Also, all owners may also need to report future income and gains related to the asset. Tax and legal advice are needed to confirm tax implications. For principal residences, joint ownership can unintentionally reduce or eliminate a portion of the principal residence exemption.
2. Estate complications and family conflict
If a jointly held asset passes directly to a survivor, it may leave too few assets in the estate to fulfill gifts in the will or cover taxes or estate expenses. This can lead to disputes, especially if beneficiaries believe the asset should form part of the estate. When assets are put in joint names with an adult child, courts may apply a presumption of resulting trust, which presumes the child is holding the asset on trust for the estate and the assets forms part of the deceased’s estate. The child could be forced to prove joint ownership was intended as a gift to them with no conditions.
Case study
Mary, age 78, added her adult son Paul as a joint owner with right of survivorship on her investment account to make things easier when she passed away. She wanted the account to stay out of her estate and assumed Paul would divide it fairly among his siblings.
A year later, she died. As the surviving joint owner, Paul received the money and claimed she had intended it as a gift to him for all his help over the years in helping her manage her finances. Conflict quickly arose between Paul and his siblings, and estate litigation commenced.
Mary should have sought legal advice. Other options could have been explored, such as using a power of attorney instead of joint ownership, communicating her intentions clearly to the family, and hiring a lawyer to properly document her wishes for the account. These steps could have helped avoid family conflict, damaged relationships, and costly litigation.
3. Exposure to creditors and relationship breakdowns
When you add someone as a joint owner, their financial risks become yours. That means the asset may be exposed to:
- Their personal or business creditors
- Claims in a divorce or separation
- Forced sale to satisfy debts
For example, if a parent adds an adult child to an investment account and that child faces financial trouble, the account may be vulnerable.
4. Loss of control and access issues
All joint owners typically have equal access to the asset, and risks could include unintended withdrawals, disagreements on how the asset is managed, and difficulty reversing or changing ownership without everyone’s consent.
The bottom line
Joint ownership can be useful in some circumstances, but it can put your estate plan at risk if not handled carefully. In many cases, a power of attorney for property may be a safer way to provide access for financial management without transferring ownership.
Get the right advice
Before adding anyone to your accounts or property, speak with qualified legal or tax professionals. They can help ensure your estate wishes are protected, and that you don’t experience unexpected risk.
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