Joint Ownership of Assets
By GEORGE L. CRAIG ,
Real Estate, Wills & Estate Law Department
The Legal Implications of Joint Ownership
Many persons own assets with someone else. Such assets
may include their home, land, cars, bank accounts, stocks,
bonds, credit union accounts or any other kinds of property.
Safety deposit boxes often have more than one name listed
as owner.
When such assets are owned by two or more persons as "Joint
Tenants with a Right of Survivorship," "Joint
Tenants," "Joint Account," or simply "or
the survivor" after their names, some very specific
legal rules apply. You should understand the implications
of these legal rules.
Often, persons will make their bank accounts joint to allow
either named person to sign on the accounts. Older people
will often do this to permit a son or daughter to take over
management of the assets, if the parents become incapable
themselves.
Joint tenancy is also used as a technique to avoid probate
since the surviving joint tenant automatically owns the
assets at the death of the other.
The Drawbacks
Such an ownership arrangement does have benefits but there
are drawbacks as well.
The Income Tax Act, calls a transfer or gift
of certain property a deemed disposition at fair market
value. Thus, a transfer of some assets into joint names
may trigger the payment of income taxes. The transfer of
some assets, other than in the joint names of spouses, may
mean the loss of important benefits otherwise available
to the survivor. This loss may be more costly than the expense
of probate.
A joint tenancy asset may be vulnerable to the debts or
liabilities of either of the joint
tenants. Thus, if one joint tenant is responsible for damages
from an auto accident, the joint tenancy account could be
at risk. The other joint tenant may have to spend money
to defend his or her interest, even though the other owner
may have contributed nothing.
Similarly, if one joint owner has a business or personal
financial setback, runs up large debts or goes through a
divorce, there may be claims that the joint account or part
of it is subject to his or her creditors or spouse. Just
defending such claims can be expensive.
A parent who makes a child a joint owner gives up considerable
control of the asset in question. A parent who wishes to
sell an asset must now seek the consent of the co-owner.
The co-owner has the legal right to refuse the consent and
some do.
Also, section 26 of the Family Law Act can
operate to sever a joint tenancy of a matrimonial home.
Finally, because jointly owned assets transfer directly
to the survivor, they are not affected by a will or trust
of the owner who dies. A parent may unintentionally leave
all of his or her assets to a "co-signer" instead
of having them equally divided among all of the children.
What Should You Do?
People often receive conflicting advice about joint ownership
of assets. Bank personnel may recommend it for the convenience
of multiple signers on accounts. Stock brokers may advise
you that it makes transfers simpler. Other advisors may
recommend it as a way to avoid paying Ontario's probate
fees.
Joint tenancy has important legal implications, however,
and your best advisor is a lawyer experienced with all of
the assets with this type of ownership. An experienced lawyer
will not recommend this type of ownership without a complete
review of your assets and your wishes for their transfer
on your death. An experienced lawyer will also advise you
on the other tools available to assure continued management
of your assets in the event of disability. Such options
may include durable powers of attorney or the use of trusts.
We, perhaps in consultation with your accountant or other
tax advisor, can recommend a complete plan that protects
your interests, carries out your wishes and saves substantial
expenses.
This clearly is an area where you should not rely upon
advice of persons not fully aware of your assets and not
completely aware of the law. No matter how well intentioned,
improper advice can be very costly indeed.
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The above is not intended to constitute
legal advice. Please contact a lawyer to clarify your
legal rights.
