Structuring shared property ownership to meet your objectives
When two or more people own real property together, they can own as either joint tenants or tenants in common. There are key distinctions between the two arrangements, which is why it is important that you consult with a lawyer to determine which is most suitable for you.
By Karen Liong
What’s mine is yours, what’s yours is mine
When parties own property as joint tenants, each owner has an equal, undivided interest in the whole property.
What is unique about joint tenancy is the “right of survivorship”, also known as the “last man left standing” form of ownership. When one owner passes away, he or she is removed from title as an owner (with the fairly simple filing of a Land Title Office form) and the surviving registered owner remains on title. No probate fees are paid on the transaction, and the parties avoid the often costly and timely step of a probate application. Probate is not required until the last owner passes away, at which time the property passes in accordance with his or her will.
Tenancy in Common:
What’s mine is mine, what’s yours is yours
When parties own property as tenants in common, each owner owns a portion in the property such as half, a third, 1%, or whatever percentage the parties choose. For example, parties may decide to structure their proportionate ownership to reflect each owner’s financial contribution towards the purchase.
After an owner passes away, probate will be required and probate fees must be paid before his or her share passes through his or her estate.
What form of ownership is right for you?
Simply put, it depends. Spouses typically prefer to own property as joint tenants because the right of survivorship will be in-line with their estate planning objectives. They can avoid paying probate fees after the death of the first spouse, as well as the administrative costs of applying for probate assuming probate is not otherwise required.
In comparison, friends who own property for strictly investment purposes will tend to prefer owing as tenants in common. Each investor can pass their share of the property to their respective beneficiaries in accordance with their will (if this is the case, talk to us about the benefits of having a co-ownership agreement in place!).
Despite the right of survivorship that comes with joint tenancy, spouses may choose to purchase property as tenants in common if one spouse qualifies for the property transfer tax first-time homebuyer’s exemption. If the qualifying spouse purchases a 99% interest in the property with a fair market value of $500,000.00 this could result in a savings of $7,950.00 in property transfer tax.
What about adding my adult child on title to avoid probate fees?
Joint tenancy is increasingly used as an estate planning vehicle to transfer an asset from parent to child. It is advisable that you seek the advice of an estate planning lawyer to discuss this arrangement because it may result in unintended consequences including
- a loss of control over the property
- exposing the property to additional creditors
- income tax implications
This information is provided for general information purposes only and is not intended to be relied upon as a substitute for legal and professional advice.