As you close in on the purchase of your new home, a discussion of ownership is typically had when transferring the property title to your possession. There are many legal intricacies that all property owners should know when owning a property; even more so with regards to joint ownership.
Joint ownership allows a property’s title to be held by two or more people. Whoever holds the title for a specific property is the owner. Therefore, joint ownership is simply the distribution of the title among multiple people.
There are many reasons why homeowners choose to have joint ownership—whether it be two spouses owning a property together, or a family dividing the ownership of the family home, joint ownership is a common occurrence in the real estate business. However, joint ownership can be a little hard to understand for first-time buyers, so it’s crucial to read up on the various nuances involved with joint ownership. Two of the most important things to understand about joint ownership include:
- Joint tenants vs. tenants in common
- Potential obstacles
Joint tenants vs. tenants in common
Joint ownership can refer to one of two types of ownership. Since a property title can be held by two or more people, this means that the title can be registered by joint tenants or tenants in common.
While very similar, they each have distinguishing qualities. Joint tenants generally refer to joint ownership with the right of survivorship. This means that if one of the owners die, the property title transfers over to the remaining owner, who then becomes the sole owner of the property.
Tenants in common, on the other hand, involves the use of a will. When any of a property’s owner dies, their share of ownership does not transfer over to the surviving owner. Instead, it transfers over to a person appointed in the deceased’s will.
For example, a family moves into a new home with the two spouses co-owning the property. When one of the spouses die, the ownership can transfer in one of two ways. If the married couple were registered as joint tenants with the right of survivorship, the entirety of the property title would go to the surviving spouse. If one of the spouses listed a beneficiary (ie. one of their children), that beneficiary will claim the parent’s share of ownership when the parent passes away.
While joint ownership is very common for married couples looking to co-own a property or families that wants to divide ownership of a property between an elderly parent and child, there exists a great number of problems and obstacles that one might encounter. These problems include:
- Transferring property into joint ownership
- Probate fees
Deciding who should own the property is almost always a difficult decision—especially when it comes to a family of multiple children. When buying a new home, married couples commonly register the title between both spouses. As married couples begin to start a family, they have to eventually think of transferring their assets to their children—and that includes the property title.
Property titles that are listed between two people under joint tenancy with right to survivorship are legally simple; when one owner dies, the surviving owner gains full ownership of the property. However, when it’s time for the surviving parent to pass their ownership to their children, or the deceased appointed one of them to receive their share of ownership through tenants in common, a slew of problems may arise.
Through joint tenancy with right to survivorship, the surviving owner becomes the sole owner of the property—meaning that all decisions are solely made by that person. When a beneficiary is appointed by the deceased, all decisions must be made jointly; between the surviving parent and the beneficiary.
Parents typically transfer their property to joint ownership with one of their children to avoid probate fees. These fees vary between provinces and are sometimes hard to avoid. Probate fees arise when a will needs to be validated by the court to ensure that a deceased’s assets are transferred as per the deceased’s will.
This also gives rise to more potential problems. Transferring assets to a beneficiary, which is typically a child, in joint ownership of the property may result in immediate taxing and can trigger capital gains taxes.
This is because a property may not have been the deceased’s primary residence. Every Canadian has the right to hold a primary residence that grows tax-free in value, which means any other property may be subject to capital gains taxes.
It also can result in a dispute between children over the ownership of the property title. When a child is appointed as the recipient of the property, it can be argued that they were not the intended recipient. This can result in costly disputes between children due to the conflict between the members and litigation expenses.
Therefore, to avoid disputes and family conflict, it’s crucial to clearly outline an intention to provide a property to a specific individual. It may also be better to give an individual sole ownership of the title rather than have a joint ownership due to the many problems that can arise.
From avoiding probate to naming a beneficiary in your will, owning and purchasing a house comes with several huge decisions that extend all the way to someone’s death. Cautious steps need to be taken to ensure that conflict does not arise—be it personal or financial.
As you plan out the rest of your life with your loved one or help your parents with their will and legacy, consider the pros and cons of joint ownership. While the cons can be potentially detrimental to your family, the right understanding and careful planning can help minimize—and even prevent—the many obstacles and problems of joint ownership.