Wealth and asset transfers via joint tenancies: How careful estate planning can simplify successions

Farris' Isabel Romeral on using co-ownership to secure inheritances – while avoiding family feuds

With the world’s current focus on health, and Canada’s aging population, estate planning has never held a greater importance than it does today. Joint tenancy is one of the most commonly used types of co-ownership for inheritance purposes, as it can be used to reduce the financial burden and tax obligations of an estate. However, this planning strategy is not without its hazard, and it requires proper planning, risk mitigation, and careful preparation for it to be effective. We asked estates and succession lawyer Isabel Romeral of Farris to share everything you need to know to set up a safe joint tenancy plan and avoid unintended consequences in the future.

What is joint tenancy and when is it used in estate planning? Which people are most likely to be named joint owners and why?

Joint tenancy is a form of co-ownership of both personal property and real property. Upon the death of the first joint owner, the property passes to the surviving joint owner. For joint tenancy to be effective, the property must be owned by two or more persons in equal proportions and with identical interests and rights to use the whole of the property. Further, joint tenancy requires at all times maintenance of what is called the four unities:

  1. Unity of title – interest for each joint tenant must be created under the same instrument
  2. Unity of interest – interest for each joint tenant must be identical in nature, extent and duration
  3. Unity of possession – each joint tenant must have an undivided interest in the whole property
  4. Unity of time – each joint tenant must hold their interest for the same period of time

Joint tenancy is most commonly used in estate planning between spouses with respect to their real property and/or their bank accounts. Generally speaking, if spouses are the sole beneficiaries under each of their wills, joint tenancy can allow for a bypass of probate fees and for assets to pass to the surviving spouse immediately hence easing the burden of the estate administration process. Further, there are no Canadian income tax consequences to transferring ownership of property between spouses.

Recently, joint tenancy has become increasingly common between parents and children. Some of the pitfalls and unintended consequences associated with this are discussed below.

Are there any times when joint tenancy agreements might be counterproductive to execution of other terms of wills or testaments? What advice do you have for clients who are facing these contradictory positions?

Sometimes clients can misunderstand their ownership of real property. Tenancy in common is another form of ownership where two or more persons each share ownership of a property in either equal proportions or in different proportions. In a tenancy in common scenario, the property would not pass on death to the surviving co-owners, but the interest of the deceased person would form part of the deceased person’s estate.

When drafting a Will, it is imperative for estate planners to do their due diligence and conduct title searches of real property. If a client wishes to gift their interest in real property to a beneficiary under their will, there must be certainty that the client holds such property as a tenant in common and not as a true joint tenant.

Another issue that can arise with joint tenancy in estate planning is an out of order death. For example, if a parent is on title to real property as a joint tenant with two children and one of the children dies before the parent dies, the surviving child inherits the property and the deceased child’s family receives nothing. This may not have been the intention during the planning stage.

It is very important for clients to obtain proper legal advice and understand the nature of their ownership, the purpose for their change in ownership structure and their overall goal with their estate planning.

What are some of the risks of joint tenancy? Are these more prevalent for certain relationships than others? If clients do decide to go forward with this strategy, what are some of the ways in which they can be proactive in reducing their exposure to these potential risks?

There are a number of risks relating to joint tenancy. These tend to be more prevalent in cases where the joint tenants are those other than spouses. For example, a parent and an adult child.  Some of these risks include:

  1. Loss of Control – joint tenants may not be able to sell or mortgage real property without both signatories
  2. Exposure to Creditors and Others – if the joint tenants hold both legal and beneficial interest in the property there is risk of exposure to creditors or family law claims by a spouse in the event of a relationship breakdown
  3. Taxes – potential for payment of capital gains tax, loss of principal residence exemption or property transfer tax if the residence is not a principal residence

There are planning strategies that clients can consider to mitigate these risks. The most obvious being to properly document the intention behind the joint tenancy. Was the intention to transfer both legal and beneficial interest? If so, a deed of gift could be signed to confirm a true gift was intended. Was the intention to transfer legal title only and not the beneficial interest? Then perhaps a declaration of bare trust could be signed to evidence that intention. Other strategies such as the execution of a Limited Power of Attorney dealing with the property may be useful to maintain control over the property.

What are the right of survivorship and the presumption of advancement, and how do they affect joint tenancy? Similarly, how do other familial considerations – including blended families, challenged wills, etc. – impact the suitability of this legal mechanism?

The right of survivorship means that property passes to the surviving owner or owners on the death of a joint owner. On the death of the last surviving joint owners, the property will be in included in the estate of the last to die.

The presumption of advancement means that a gift is presumed in the absence of any evidence to the contrary. The Supreme Court of Canada decision in Pecore v. Pecore, 2007 SCC 17 and other subsequent cases abolished the presumption of advancement between a parent and adult child but preserved the presumption for transfers of property between a parent and minor child.

Currently the law is such that a gratuitous transfer between a parent and an adult child is subject to the presumption of resulting trust (meaning that the child holds the interest in trust for the parent’s estate and the child does not receive the property by way of survivorship) unless that presumption can be rebutted with documented evidence. This highlights once again the importance of properly documenting intention at the time of the transfer.

There are numerous other considerations when discussing joint tenancy, including blended families. If spouses in a second marriage own property as true joint tenants and both have children from previous relationships, without the proper planning in place they may unintentionally be cutting out the children of the first spouse to die. 

What groundwork and due diligence should clients undertake before considering joint tenancy as a path forward in their estate planning? Do you have any insights on how they can best prepare against potential familial disputes that may arise?

As alluded to previously, Pecore established three types of ownership derived through joint tenancy:

  1. A true joint tenancy;
  2. A resulting trust; and
  3. The “gift of the right of survivorship” wherein a joint tenant is gratuitously placed on title with no beneficial interest in the property during the lifetime of the donor but if the donee survives the donor, the donee will receive the entire property by right of survivorship.

Clients should consider their intentions and ask themselves – “what do I want the end result to look like?” They should then discuss with their lawyer what the implications are of each option, and again, properly document the chosen option. These discussions serve as an important reminder that, although seemingly straightforward, estate planning strategies involving joint tenancy must be carefully implemented to avoid unexpected issues arising in the future.

Do you have any other insights on helping clients navigate the legal landscape of estate planning post/during COVID?

The most notable change in our industry from the pandemic has been the allowance of electronic witnessing of enduring powers of attorney, representation agreements and wills. This change facilitated socially-distanced estate planning, but also allowed for access to legal services by individuals in more remote areas of the province that could otherwise have been challenged in meeting with a lawyer. Further, Bill 21: Wills, Estates and Succession Amendment Act, 2020 includes provisions that are not yet in force relating to electronic wills which would undoubtedly create more flexibility for clients, yet create further considerations for estate planners and litigators.

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Isabel Romeral is an associate with a focus on estate planning, estate administration and trusts.

As part of her practice, Isabel assists clients with estate and incapacity planning. She prepares wills, powers of attorney, representation agreements, alter ego trusts, joint partner trusts, family trusts and other planning documents. Her experience with clients ranges from young professionals to high net worth individuals.

Isabel also advises executors, administrators, trustees and beneficiaries on estate and trust administration matters and assists with the probate process.

As part of her corporate practice, Isabel assists clients with general corporate matters including incorporations, the preparation of business contracts and shareholder agreements.

Isabel has obtained her TEP designation and is a member of the Society of Trust and Estate Practitioners. She has also presented for CLEBC and CPABC on various estate and trust topics.

Prior to joining Farris LLP, Isabel completed her articles at a leading national law firm, worked as in-house counsel for a biotechnology company and practiced in wills, estates and trusts at a regional Vancouver law firm.

Isabel is fluent in Spanish.

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