All About Estates

Probate Tax Planning – Joint Tenancy May Not Always Be the Best Option

In Ontario, property that a deceased owns as a joint tenant with another person does not form part of his estate for probate tax calculation purposes.  As a result, significant attention is now being paid to the use of joint ownership as an estate planning technique to reduce or avoid probate taxes for both real and personal property.  However, when property is transferred into joint ownership there are many issues that should be considered other than the potential probate tax savings. 

The first issue to consider is that the transferor is going to lose control over the property once it is transferred.  For example, the property cannot be sold, or restored to the name of the original owner, without the consent of the new joint owner. Furthermore, a joint tenancy can be severed by a unilateral act on the part of either joint tenant, thereby creating a tenancy in common, whereby each owner is entitled to an undivided interest in the property, which can be dealt with independently of the other tenant in common.  Finally, the transferred assets could also become exposed to the claims of creditors of the transferee, including claims made by the transferee’s spouse pursuant to the Family Law Act (Ontario). 

Another potential issue that needs to be considered is how the transfer of the assets into joint tenancy fits into the transferor’s overall estate plan.  Since the assets transferred into joint tenancy will not form part of the transferor’s estate and will not be dealt with according to the terms of the transferor’s will, care should be taken to ensure that the transferor’s overall intentions are not defeated.   For example, if the transferee receiving the joint assets is one of three children of the transferor, and each of these children is an equal residual beneficiary of the transferor’s estate pursuant to the provisions of her Will, the transferee receiving the joint assets will receive both an equal share of the residual estate and the joint assets, which may be an unintended windfall gained at the expense of the other two children. 

This leads to another potential issue, which is whether this planning technique will result in family conflicts following the transferor’s death.  The potential for conflict arises because the transferee often considers that he or she is the sole owner of joint assets and that this is what the transferor intended.  Not surprisingly this conclusion is often challenged when there are other family members who would benefit under the will or on an intestacy if the joint assets formed part of the deceased’s estate.  These conflicts have resulted in interesting cases and legal issues, some of which may be discussed in future posts.  However, the end result is often that a planning technique that was originally undertaken because of convenience and probate tax savings has now split a family apart and cost avoidable legal fees. 

Stay tuned for a future post from Corina Weigl regarding the tax consequences of transferring property into joint ownership.



About Laura West