Joint Ownership as Estate Planning in Ontario: Overlooked Risks

Many families add a child or partner to a house or bank account to keep things simple. Joint ownership can do that, but it also has side effects people often overlook.

This article walks through the main risks so you can ask better questions before changing title. It is general information, and a lawyer and an accountant can look at your situation.

Why people use joint ownership, and what it really does

A person may convey property to themselves jointly with another person, which is how an owner can add a child or partner to title. Property held with a right of survivorship goes straight to the surviving owner and not into the estate.

It also overrides the will. A deceased joint tenant's interest goes to the surviving joint tenants and not to the will's beneficiaries. If your will says one thing and your title says another, the title can win for that asset.

Loss of control and exposure to creditors

On a joint bank account, any named holder can withdraw at any time. If one holder has financial problems or goes bankrupt, creditors could make claims on the money.

For land, any joint tenant or tenant in common may be compelled to make or suffer partition or sale, and any person interested may apply to the court for partition, or for sale if the court considers sale more advantageous. Adding a person to title can therefore leave your home exposed to that person's circumstances.

Where the property is a matrimonial home, a spouse generally cannot sell or mortgage an interest in it without the other spouse joining in or consenting, unless a separation agreement, a court order or a valid designation of another home applies.

Tax surprises

If you give capital property as a gift, you are considered to have sold it at fair market value when you give it, and you must report any capital gain for that year. The automatic rollover applies to gifts to a spouse or common-law partner, not to children, except for qualifying farm or fishing property.

At death, a person is considered to have sold all their capital property just before death, which may produce a capital gain on the final return, even if the property passes by survivorship. Property transferred to a surviving spouse or common-law partner who is resident in Canada can roll over without immediate gain in some cases, and some or all of the gain on a principal residence may be exempt.

On probate fees, jointly owned property that passes automatically to the other owner is not included in the estate value for estate administration tax. But a joint asset the survivor holds on resulting trust for the estate does not escape the tax. An accountant can explain how these rules interact for you.

Disputes, support claims and the matrimonial home

A later dispute often turns on whether the joint owner was meant to receive a gift, and the courts look at the evidence of what the person making the transfer intended at the time. The presumption of resulting trust is the general rule for gratuitous transfers, and the person receiving the transfer carries the onus of showing a gift was intended. An adult child added without paying is presumed to hold the asset in trust for the parent and, on death, for the estate. The presumption of advancement is confined to minor children, and an adult child's financial dependency does not trigger it, though it can be strong evidence against the resulting trust.

Courts can look at the bank wording, control and use of the funds, any power of attorney, tax treatment and later evidence about intention. Between spouses, property held in both names as joint tenants is proof, without evidence to the contrary, of an intention to own it jointly.

• If a spouse dies owning a matrimonial home as a joint tenant with a third person such as a child, the joint tenancy is deemed severed immediately before death and the deceased's share goes into the estate.
• Joint tenancy property and joint deposits can be counted in the net estate for a dependant's support claim.
• For joint deposits, only the portion that belonged to the deceased immediately before the deposit is counted.

What to do next

• Write down why you want to add the person and what you want to happen to the asset.
• Ask an accountant about capital gains before changing title.
• Ask a lawyer whether there are other ways to reach your goal, such as a different ownership structure.
• Think about what happens if the other owner has debts, a divorce or dies first.
• Keep a written record of your intention, since it can matter in a later dispute.

Frequently asked questions