Estate Law Articles
8 Dangers of Owning Property in Joint Tenancy
“Joint Tenancy with Right of Survivorship” means that each person has equal access to the property. When one owner dies, that person’s share immediately passes to the other owner(s) in equal shares, without going through probate. We’ve all been told that Joint Tenancy is a simple and inexpensive way to avoid probate, and this is sometimes true. But the tax and legal problems of Joint Tenancy ownership can be mindboggling. The dangers of Joint Tenancy include the following:
Danger #1: Only Delays Probate. When either joint tenant dies, the survivor – usually a spouse or a child – immediately becomes the owner of the entire property. But when the survivor dies, the property still must go through probate. Joint Tenancy doesn’t avoid probate; it simply delays it.
Danger #2: Two Probates When Joint Tenants Die Together. If both of the joint tenants die at the same time, such as in a car accident, there will be two probate administrations, one for the share of each joint tenant in the Joint Tenancy property as well as any other property they each may own.
Danger #3: Unintentional Disinheriting. When blended families are involved, with children from previous marriages, here’s what could happen: the husband dies and the wife becomes the owner of the property. When the wife dies, the property goes to her children, leaving nothing for the husband’s children.
Danger #4: Taxes. When you place a non-spouse on your property as a joint tenant, you are making a disposition of property and capital gains taxes may be due and owing in the year of the transfer into joint tenancy and you may be creating future taxes if the new joint owner already has a principal residence.
Danger #5: Right to Sell or Encumber. Joint Tenancy makes it more difficult to sell or mortgage property because it requires the agreement of both parties, which may not be easy to get.
Danger #6: Financial Problems. If either owner of Joint Tenancy property fails to pay income taxes, the Canada Revenue Agency can place a tax lien on the property. If either owner files for bankruptcy, the trustee in bankruptcy may be able to sell the property.
Danger #7: Court Judgments. If either joint tenant has a judgment entered against them, such as from a car accident or business dealings, the holder of the judgment can file a Writ of Seizure and Sale against the property held in Joint Tenancy.
Danger #8: Incapacity. If either joint owner becomes physically or mentally incapacitated and can no longer sign his name, and no Attorney for Property has been appointed, the Court must give its approval before any jointly owned property can be sold or refinanced – even if the co-owner is the spouse.
Because of the tremendous risks, I suggest: “Consider all the possibilities of both joint tenancy and tenants in common and carefully review the possible consequences with your lawyer.”