Joint Tenancy – Numerous Risks
This may or may not be a good idea.
At the outset, the advantage is to eliminate “probate fees”. Actually, that’s the estate administration tax, which would be roughly $15,000.00 per million dollars. So, if a parent leaves a $1 million house in their own name, then, that would result in savings of $15,000.00.
However, adding a child as a “joint tenant” is not without risks and there are several as mentioned at a recent Law Society seminar.
Ownership and Control
Decisions now have to be made together. Going forward, the child will have to consent to various matters. The parent is no longer the sole decision-maker.
Mortgage on Property
The child now has a 50% interest in the property. That could be changed to tenants-in common” rather than “joint tenants” simply by the child’s own decision or conduct. Now, if they wish they could place a lien or mortgage on their own 50% interest.
Child’s Spouse
While you may not expect this, once the child has their 50%, that same share is at risk with their spouse. If their marriage falls apart, the spouse may claim a portion of that interest. Without a marriage contract, that would be 50%. This would mean that the spouse would be entitled to $250,000.00, and that could either be as part of the house or as against other assets. If it’s as part of the house, that’s amajor problem for the parent.
Creditors
If there is a marital split, the child’s spouse could become a creditor and require the Court to order a judicial sale of the property.
This would be an option similarly available to other creditors of the child.
Bankruptcy Trustee
If the creditors of the child become anxious about payment they could petition the child into bankruptcy. This would sever the joint tenancy into two equal 50% shares as tenants-in-common.
The child’s 50% share could be seized and sold to pay off their debts. This would be problematic for the parent.
Unexpectedly, the child could be in a car accident and be responsible for damages to others in excess of the insurance that they carry. Again, this matter might be pursued by their creditors.
Judicial Review and Sale
The Court also has jurisdiction to order a severance of the joint tenancy, and to order the sale and disposition of the property. This could be done at the request of the request of the child. Or, maybe the child is no longer “competent” and their Attorney pursuant to a Power of Attorney which they signed, decides to pursue this.
Multiple Children
There could certainly be a problem if there is more than one child. This may appear to favour one child over the others. If “yes”, this should be documented. If “not”, this should be documented. Frequently, this issue is ignored.
First Time Home Buyer Rebate (Land Transfer Tax)
There is an opportunity for a first-time homebuyer Land Transfer Tax rebate. This will be eliminated since the child will no longer qualify as a first- time homebuyer.
Comment
Be careful, consider all the risk before proceeding.
Brian Madigan LL.B., Broker