Is Joint Tenancy The Right Choice?

I am often asked by clients whether they should hold their assets jointly; whether it’s a bank account, their vehicle, or their home. For certain people, in specific circumstances, this can be very good advice. However for others, it can have some very unpleasant and unintended consequences.

The term that you will hear used is “Joint Tenancy”, which means that you share that asset with another person completely and equally. It also means that the asset carries with it the “right of survivorship” and therefore when one joint owner dies, the surviving owner automatically acquires the entire ownership of the property.

Joint Tenancy is often advised as an estate planning tool as a means to avoid Probate Fees. Probate Fees are charged on the value of your estate when you die, and they are approximately 1.4% of the gross value of the estate. Property that is held in Joint Tenancy, however, is transferred immediately to the surviving owner and therefore is not a part of your estate when you die.

While Joint Tenancy can be a very effective estate planning tool when it is part of a carefully considered and drafted estate plan, it should not be done lightly as there are risks involved. Occasionally, when someone attempts to save that 1.4% on Probate Fees, they end up paying much more in capital gains because they have transferred a home to someone who does not occupy it as their principal residence.

Another risk of putting property into Joint Tenancy is the risk that you might lose control of that property during your lifetime. For example, if you put your house into Joint Tenancy with your children, your house could be subject to a claim by your children’s creditors or ex-spouse. Imagine if your child went bankrupt and you were forced to sell your home.

Joint Tenancy may also have unwanted results if you are part of a blended family is a blended family. For example, if you hold title as a joint tenant with your new spouse and you pass away first, your share of the house would pass directly to the other joint owner and not to your children. Depending on how you own your assets, you may end up unintentionally disinheriting your children.

Another risk arises when one joint owner secretly severs the Joint Tenancy, turning it into what is called a Tenancy in Common. In these cases, the joint owner could deal with their half of the property without the knowledge of the other owner. Imagine if you had no intention of gifting the property until you had died, only to discover that you have just given away half of it.

There are definitely benefits to holding property in Joint Tenancy, but it is always a good idea to consider the risks, the pros and cons and draft a careful estate plan with the advice of a professional.