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In common-law provinces, there are two ways in which more than one person can own property.

The first way is as tenants in common, where each person owns a divided interest in the property. Upon the death of one owner, the deceased owner’s share passes to their estate and is distributed as per their will (or the rules of intestacy, if they have no will).

The other form of ownership is as joint tenants with right of survivorship (JTWROS), where each person generally owns an undivided interest in the property. Upon the death of one owner, the surviving owner receives 100% of the property; the estate of the deceased joint owner does not receive any portion of the jointly held asset.

This article will look at the pros and cons of joint tenancy.

Read: Joint tenancy, a primer

When joint tenancy can go wrong

Jointly held assets pass outside of the estate, which means they are not subject to probate fees or estate administration taxes. As such, JTWROS can be a simple and cost-effective tool in estate planning. For instance, a widowed parent may add an adult child on an account or on title for convenience’s sake, since JTWROS can give an adult child authority in administering the asset/account on behalf of the elderly or infirm parent.

However, JTWROS can also have the unintended consequence of being costly and complicated, which may result in the depletion of estate assets and family acrimony via lawsuits. Much can go wrong when a person places property into joint tenancy without understanding the implications.

Read: T1135 reporting and joint tenancy: what to do

Take the British Columbia case of Zeligs v. Janes (2016). In that case, Dorothy (a widowed mother) lived alone in her principal residence in Vancouver. She then invited her daughter Diana and Diana’s husband to live with her. Dorothy’s other child, Barbara, lived in the United States.

Diana became Dorothy’s attorney and a joint tenant with right of survivorship on the principal residence. Dorothy’s will directed her estate, the bulk of which was the value of Dorothy’s home, to be split equally between Diana and Barbara.

Read: What to do when friends want to buy property together

In January 2010, when Dorothy was 103 years old, the property was sold for approximately $2.7 million. Diana kept the proceeds of sale. She claimed that since she and her mother were joint tenants, she was now the sole owner. Shortly after, Dorothy died.

Barbara’s position, however, was that Diana’s interest in the home was legal only and not beneficial – in other words, the joint tenancy had been done for convenience’s sake and that Dorothy never wanted Diana to own the entire home after Dorothy died. Barbara argued the proceeds of sale should form a part of Dorothy’s estate and be divided equally between the sisters.

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Based on a note left by Dorothy, the court determined that Dorothy’s intent was to leave the home entirely to Diana. The note read in part: “I asked Diana […] to move in and stay with me as long as I live, and to be fair to Diana I made her joint owner as long as I live & full owner when I die.”

In the end, the court sided with Barbara, but only on a technicality: it found that Diana severed the joint tenancy when she withdrew the sales proceeds from a joint account she held with Dorothy, essentially converting her interest into a tenancy common.

Nonetheless, the moral for advisors is they should carefully explain the implications of joint tenancy, particularly in cases where the tenancy is joint between an adult child and an elderly parent. If clients understand that their adult child will become sole owner after their death and they still want to proceed with JWTROS, clients should document that intention clearly via the will. This is especially important if there is more than one estate beneficiary.

Read: Why family gifts and loans require planning

If, however, the intent is for the child to hold the asset in trust as joint owner for himself and for the benefit of his siblings, that also needs to be documented. Clients should also document whether the asset is to remain in the parent’s estate as a resulting trust.

Advisors should educate clients about the pros and cons of JWTROS, and the benefits of documenting intention. Doing so will provide clarity and perhaps save the estate litigation costs, but more importantly it will help sustain the fabric of the family already fragile as a result of a parent’s death.

Tim Brisibe, TEP, is Director, Tax & Estate Planning at Mackenzie Investments.