Basic HTML Version
136
Escarpment Magaz ine Summer 2012
Married
spouses commonly hold property jointly with right
of survivorship. In certain circumstances, there are several ben-
efits to this ownership structure.
For example:
•
Each spouse has the ability to manage the property without
written consent of the other.
•
Upon the first death, the surviving spouse automatically owns
100% of the property.
•
Probate tax is payable on the value of the property only once
(i.e. at the time of the second death).
However, joint ownership for couples may not be appropriate
if one of the spouses wishes to benefit children of a previous
relationship, or other family members, friends, charities or other
beneficiaries.
In addition, conflicts can arise during the administration of the
estate of an individual who had transferred property into joint
names (with a right of survivorship) with another person who
is not a spouse or where the spouses do not have common chil-
dren. Disgruntled beneficiaries, heirs at law or creditors, may
try to claim that the property held jointly should form part of the
deceased’s estate to be distributed in accordance with the
terms of his or her Will, or be subject to estate liabilities.
Where a parent transfers property into joint names with only
some of the children, there is potential for conflict among the
children and other beneficiaries as to whether an immediate
gift was intended at the time of transfer, or whether the surviving
joint owners hold the property as a Resulting Trust for the par-
ent’s estate.
In addition to potential conflict, a host of other problems may
be associated with the transfer to joint tenancy. For example,
if the property transferred has an accrued gain, there could be
immediate tax liability triggered, upon transfer. If the family
home is transferred to joint tenancy, there may be loss of some
of the Principal Residence Exemption, in the future. In general,
property should be transferred into joint names with children
only when an immediate gift is intended. If you are contem-
plating joint tenancy with right of survivorship, you should be
aware of the following:
•
All owners have immediate, full access to the property.
•
The property passes to the surviving owners on the death of
one joint owner by right of survivorship, bypassing the de-
ceased’s estate and possibly conflicting with distribution plans
in his or her Will. For example, the Will may provide for an
equal division of the estate among surviving children. If prop-
erty is held jointly with only one of the children, was it intended
that that child receive this asset in addition to an equal share
of the estate?
•
If there is an out of order death, family members may be dis-
inherited. For example, what if one of the children dies before
the parent? Usually grandchildren receive a gift over of their
deceased parent’s share under their grandparent’sWill. How-
ever, with joint tenancy, grandchildren who are the surviving
children of a predeceased child of the testator will not receive
their deceased parent’s share. On the grandparent’s death,
the property will pass only to the surviving children who are
joint owners. This could occur where there is a common acci-
dent that claims the parent and grandparent.
•
The property may become subject to the claims of creditors
of all joint owners. In the event of a divorce of one of the joint
owners, a creditor could include an estranged spouse of one
of the joint owners.
•
A transfer of property into joint names, unless to a spouse,
creates a deemed disposition or sale at fair market value for
income tax purposes on the portion passed to the other joint
owners. The death of a joint owner also generates a deemed
disposition on that person’s share.
•
All joint owners must declare their portion of the income and
capital gains from the jointly held property, if any, annually.
•
A portion of the Principal Residence Exemption will be lost if
the jointly owned property is a principal residence for only one,
or some, of the joint owners and other joint owners have their
own residence on which they intend to claim the exemption.
If property is held jointly and you want to avoid the previously
discussed negative consequences, professional advice is rec-
ommended. If you are a joint owner or are considering be-
coming one, talk to your tax and legal advisors about the
benefits and risks. Your BMONesbitt Burns Investment Advisor
can help introduce you to a professional advisor upon request.
Note: Some terms are capitalized for purposes of greater clarity in the context of this
discussion only.
|E|
This article is submitted by Peter Hodgson CFA ,Vice President and Portfolio Manager with BMO Nesbitt
Burns in Collingwood. If you have any questions, please call 705-446-2094. If you are already a client
of BMO Nesbitt Burns, please contact your Investment Advisor for more information. Opinions are those
of the author and may not reflect those of BMO Nesbitt Burns. The information and opinions contained
herein have been compiled from sources believed to be reliable but no representation or warranty, ex-
press or implied, is made as to their accuracy or completeness. BMO Nesbitt Burns is a member CIPF.
All insurance products and advice are offered through BMO Nesbitt Burns Financial Services Inc. by li-
censed life insurance agents, and, in Quebec, by financial security advisors. The comments included
in the publication are not intended to be a definitive analysis of tax law: The comments contained
herein are general in nature and professional advice regarding an individual’s particular tax position
should be attained in respect of any person’s specific circumstances.
Copies of this and previous articles are available at
n the web or by email at
JOINT OWNERSHIP OF PROPERTY: PROS & CONS
escarpment
finance - your wealth
BY J. PETER HODGSON CFA
you r we a l t h
