The Dangers of (and alternatives to) Joint Tenancy

In my practice, I am frequently consulted by seniors who are considering putting their home or cottage into “joint names” with their children. This way they can avoid Estate costs and taxes. While that is true, there are a few factors and legal consequences that people should be aware of before they place their land into joint names with a person other than their spouse. For instance:

  1. Probate fees in Alberta are relatively low and are a maximum of $525.00 for estates more than $250,000.00;
  2. There is no Estate tax payable in the Province of Alberta;
  3. Transferring property into joint ownership with someone other then your spouse may trigger income tax consequences if the property has appreciated in value. It may also result in unforeseen tax consequences such as property tax subsidies or “clawback” provisions.
  4. Joint ownership means joint control – the new “joint owner” will have rights and interests in the property such as:
  5. The property may now be garnished by creditors (or estranged spouses) of the new “joint owner”;
  6. The Transferee will lose the freedom to deal with the property without obtaining consent from co-owners;
  7. Unethical (or desperate) persons who have been named as joint tenants my place a lien or caveat on the land;
  8. In the event a child (co-owner) should predecease his parent, that child’s children would not inherit an interest in the property.

On a related issue, our office quote often deals with seniors who have placed a bank account, or other investment, into joint names with a trusted adult child or close friend. Frequently this is done because the senior was having difficulty getting out and they wished to give the child or friend signing authority on their account so that the child or friend could do the banking. On other occasions, however, investments have been placed into joint names as an Estate planning measure, to avoid Probate.

Unfortunately, it is often tough to know the senior’s intention after he has passed away. The legal texts are full of cases in which disappointed beneficiaries’” claim that monies in a joint bank account should be brought into the Estate and shared by all beneficiaries’ and not belong to the surviving account holder. Thankfully, the Supreme Court of Canada (SCC) dealt with this issue in the case of Pecore v. Pecore.  In that case, the SCC wrote that where the intention of the parent is not clear, it is up to the child to prove that the deceased parent intended to gift the balance of the account to the child. If the child cannot prove that the intention was to gift the balance to the child on the joint bank account, the Courts will find that the balance left in the joint account forms part of the deceased parent's estate to be given out with according to the parent's Will. If there is no will then it will be paid out under the applicable intestate (an estate where a person dies without a will) legislation. The same principles would apply to real estate that is owned jointly with a parent.

Where the intention is not clear, disputes over what the parent intended often results in protracted litigation between the Estate (or its beneficiaries) and the child, with significant legal expenses being incurred by all.

I do not recommend to my clients that they place bank accounts (or investments) into joint names, other than with their spouse, to give another person signing authority. The same result can be obtained just as quickly and cheaply with a Power of Attorney or Enduring Power of Attorney. Most banks will provide a power of attorney for their accounts free of charge. On the other hand, when my clients wish to place an account into joint name’s for estate planning purposes, I urge that all family members and potential beneficiaries, be aware of that intention otherwise misunderstanding’s, hard feelings and litigation are the usual results.

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