Area of Law: Wills, Estates and Powers of Attorney
Answer Number: 152
Joint tenancyRegion: Ontario Answer Number: 152
If you own property with another person as “joint tenants,” then on your death, the surviving joint owner acquires your interest in the property automatically by a process called “right of survivorship.” This means that your interest in the property will pass outside your estate to the joint owner of the property, not through your estate to the beneficiaries named in your Will.
“Joint tenants” distinguished from “tenants in common”
Co-owners of property can either be “joint tenants” or “tenants in common.” Joint tenants have identical proportions and durations of interest in a piece of property, along with identical rights of possession. Joint tenants are treated as a single owner for legal purposes. Tenants in common, on the other hand, may have different proportions or shares of the property as well as different durations of interest. If two people own property as tenants in common and one dies, the deceased person’s interest in the property will not pass to the other tenant in common by right of survivorship, but will fall into the estate of the deceased tenant in common and be distributed according to his or her will or according to the laws of intestacy.
Advantages and disadvantages of joint tenancy
In joint tenancies, the automatic transfer of property created by the right of survivorship can be very advantageous. Because the property does not fall into the deceased joint tenant’s estate, no probate should be required to change the registration of title and the property will not be subject to probate fees or the claims of creditors. However, transferring property to yourself and another person in joint tenancy can also create significant problems.
Creating a joint tenancy is the same as making an immediate gift, in that you have given up part of the value of and control over the property. The jointly held property may become subject to the claims of the spouse or creditors of the other joint tenant, and cannot be disposed of without the consent of the other joint tenant.
There may also be income tax consequences at the time of the transfer and afterwards. Unless the property is your principal residence or the other joint tenant is your spouse, any increase in value in the property from the date you acquired it to the date of the transfer will be immediately taxable to you. After the transfer, the joint owners will each be entitled to an equal part of any income earned from the property and any increase in value of the property.
Normally, each joint owner will be liable for an equal part of the tax on this income and any increase in the value of the properties. However, in some circumstances, you may be taxed on the income and increase in value even though these benefits are received by the other joint owner. Finally, on the death of the first joint tenant, the estate of the first joint tenant, not the surviving joint tenant, will have to pay tax on any increase in value of the property, other than a principal residence.
Creating a joint tenancy
A person may convey property to you and one or more other people as joint tenants. Alternatively, you may convey your own property to yourself and another person to create a joint tenancy. The important point is that a joint tenancy must be intentionally created by the same document and with very precise language. With respect to real property, which means land, the Conveyancing and Law of Property Act creates a presumption in favour of tenancies in common unless the document’s language explicitly creates a joint tenancy.
Ending a joint tenancy
You may eliminate the right of survivorship by ending the joint tenancy before your death through a process called “severance.” Severance means that the joint tenants disrupt the unity of their interests in the property through mutual agreement or unilateral action so that they become tenants in common instead of joint tenants.
Severance may also occur by operation of law. If a matrimonial home is owned in joint tenancy by one spouse with a person who is not the other spouse, the Family Law Act provides that the joint tenancy is severed on the death of the owner spouse. If all joint tenants die simultaneously, the Succession Law Reform Act provides that the property will be dealt with as if the joint tenants had been tenants in common.
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