The benefits of estate planning with joint tenancy
Estate planning is certainly not a one-size-fits-all model; however, a joint tenancy could be used to help achieve a few common goals, including:
- ensuring the property passes to the appropriate beneficiary;
- minimizing income tax and probate fees; and
- simplifying the estate administration process.
Benefits of Joint Tenancy
In order to understand the benefits of joint tenancy, it is important to first understand how it works. Joint tenancy is often referred to as “the last man standing”. When property is held in this way, upon the death of one joint tenant, ownership of the asset passes directly to the other tenant. This concept is called the “right of survivorship”. Alternatively, property can be transferred through a Will by being placed in your estate and then legally transferred to your beneficiaries.
While there are multiple benefits to joint tenancy, the “right of survivorship” plays an important role in avoiding probate fees. If the total value of an estate is over $25,000, it will have to be probated under the Wills and Estates Succession Act (WESA). The probate fee is charged by the court to validate a Will and distribute the estate. In BC, the probate fee is currently around 1.4% of all assets passing through the estate in addition to the basic application fee. By placing a property in joint tenancy, you can circumvent the probate fee because upon the death of one joint tenant the entire property passes to the other joint tenant, which prevents it from becoming part of the estate. However, the transferee of the property must be able to show that the intention of the transfer to new joint tenant was the gift of beneficial ownership because otherwise savings on probate fees could be negated.
Another benefit of maintaining property in a joint tenancy relates to wills variation. Under certain conditions, if a child or spouse is disappointed with the provisions of the deceased’s last Will, they can make a wills variation claim. Having a property in joint tenancy effectively prohibits the transferor’s spouse or children from making a wills variation claim because the property does not pass through the Will.
Joint tenancy is an effective way of avoiding probate fees and ensuring that the property ends up in the hands of the exact person you’ve designated. However, it is worth noting that there are potential risks to this type of arrangement, including its permanence. Once you have designated a joint tenant, it is difficult, if not impossible, to change your mind and regain co-ownership of the property. On the other hand, if you transfer assets through a Will, you are free to alter that Will or execute an entirely new one at any time.
There are also certain tax consequences to setting up a joint tenancy. When real property is transferred, the disposition of the portion of the property that is transferred may be taxed as capital gain against the transferor. In addition, property transfer tax will apply to the fair market value of the portion of the interest in the property being transferred. Please note that we can evaluate property transfer tax exemptions depending on your circumstances.
Joint tenancy can be a very efficient tool in securing proper passage of your assets. Prudent estate planning can help you ease the process and maximize the benefits for your beneficiaries. Consult a lawyer to see if a joint tenancy arrangement is right for you.
The article above is a simplification of the joint tenancy process – obtaining legal advice is recommended. If you need assistance creating a Will or require any real estate planning, Segev LLP is here to help. Feel free to reach out, and we will connect you with one of our experienced estate planning lawyers. You can reach us at [email protected] or 1-800-604-1312.
***The above blog post is provided for informational purposes only and has not been tailored to your specific circumstances. This blog post does not constitute legal advice or other professional advice and may not be relied upon as such. ***