When it comes to property ownership, there are several different ways to arrange things, especially if you’re in the process of planning for your estate. You might wish to leave property to one person, which is quite straightforward, but it will often trigger the need to “probate” your estate, since that is usually a requirement for the transfer of real estate from an estate. The need for probate, at least as far as the real estate is concerned, can be avoided using joint ownership. But as effective as this tool is, it’s not always the right move to make.
Today, we’ll discuss the idea of joint ownership, what it means, and when it’s a good idea to utilize it.
What is Joint Ownership?
Joint ownership refers to the situation in which two or more people own equal shares of a piece of land or property. Each member has an equal right to survivor-ship, which means that if one member of the joint ownership passes away, their share of the property automatically passes to the other members of the joint ownership. Plus, because the property won’t be passed through the estate, it’s exempt from the usual estate administration tax.
When is Joint Ownership a Good Idea?
For spouses in particular, joint ownership makes a good deal of sense when it comes to things like property, investments, and bank accounts. This way, if one spouse dies, ownership of these items automatically passes to the surviving spouse.
Ontario law states that when spouses co-own property on joint account with right of survivorship, there is a presumption that the deceased person intended that the surviving joint owner become the sole owner of the asset. If the joint owners are not spouses of each other, there is no such presumption, and so it’s presumed that the surviving joint holder actually holds a one-half interest in the property/asset in trust for the estate – in other words, the estate continues to be the effective owner of the deceased person’s share of the asset.
But these are only presumptions. If there is enough evidence that it was the deceased person’s intention that the surviving co-owner becomes the sole owner of the asset, then that’s what happens. The best way of creating evidence of that intention is to make a very clear statement to that effect in the Will.
Why Might Joint Ownership Be a Bad Idea?
Joint ownership is a neat aspect of real estate law, but it shouldn’t be used lightly, and there are some situations where it could actually do more harm than good. For example, let’s say that you’ve remarried, and your intention is for your property to pass to your children from the first marriage. In this situation, you likely wouldn’t want to make your spouse a joint owner, as this could thwart your wishes.
If the asset is subject to a mortgage or lien, the situation gets more complicated. Under Ontario law, any person who becomes a part owner of real estate automatically becomes jointly and severally responsible for repayment of the debt. So if you didn’t pay off the debt, they might find themselves having to pay it off out of their own pocket, or having to sell the property in order to repay the debt. Also, most mortgages prohibit any change of title without the lender’s prior permission. You could find the lender demanding that the loan be immediately repaid, which might trigger early payment penalties.
Adding someone’s name to the ownership of an asset means that you lose complete control of what is done with that asset because now there is another owner who will have to be part of the decision of what to do: either sell it, transfer it or mortgage it.
When the asset is disposed of, capital gains tax might be triggered. You need to consider how that might affect (a) you, at the time you add the other person’s name to the ownership, and (b) the other joint owner, at the time of disposition. Who will be responsible for payment of the tax? This gets even more complicated when one co-owner dies. The burden of paying part or all of the tax might fall on someone other than the surviving joint owner.
You shouldn’t make anyone joint owner of a property without first considering how ownership will affect them. Will they be able to handle the financial responsibilities of that property? Could passing ownership to them open up claims from their spouse or children?
Questions? Ask a Real Estate Lawyer in Barrie
Ultimately, the decision to invoke joint ownership is up to you, and depends on your unique circumstances. If you’re not sure whether it’s the right thing to do, you can always ask your real estate lawyer in Barrie. At Peter Lamprey’s office, we’re committed to providing you with clear and up-to-date information about real estate law and how it might apply to you. We’ll listen to your concerns and intentions for your estate, and we’ll help you clearly establish your intentions for your real estate or other property.
If you have any questions about real estate law, or if you’d like more information about hiring a real estate lawyer in Barrie, call (705) 722-1114. You can also send us a message online.