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Joint Ownership and Estate Planning

Joint Ownership and Estate Planning

Joint ownership is a topic that comes up frequently in estate planning practice. When two or more people own property in “joint tenancy”, each owner has an undivided interest in the entire property. When one of the owners dies, the property will automatically pass to the surviving owner(s). Joint ownership is attractive because a grant of probate from the court is not required to deal with the property, and therefore the property will not attract corresponding probate fees.

Joint ownership can be an effective estate planning tool, but only when it is used in appropriate circumstances. Spouses in a first marriage situation, for example, can give effect to their overarching plan to pass all of their estates to their spouse by owning property jointly. The administration of their estate will be simplified, and probate fees can be significantly reduced.

However, when joint ownership is used inappropriately, it can have undesirable, unanticipated consequences.

Risks to Join Holding Property

  1. Unintended distribution of your estate. You cannot force a joint owner to distribute your property in a particular fashion once you are gone. If you intend to leave your estate equally to all of your children, but in order to avoid probate fees or enable someone to help you with your financial affairs you add one child as a joint owner, there is no requirement for that child to share the asset with the others. There is no shortage of court cases dealing with this issue.
  2. Risk of abuse. Making someone a joint owner of your property (ex. bank accounts) may give them unrestricted access. Be wary of the potential for abuse.
  3. Loss of exclusive control. You will be prevented from dealing with your property without the cooperation and consent of all joint owners.
  4. Assets are open to attack by creditors. If any of the joint owners get into financial or legal trouble (for example, a marriage-related property dispute) your property will be at risk.
  5. Tax liability. The transfer can have negative tax consequences by triggering capital gains, either for you or the joint owner.

If you think that the use of a joint property is appropriate for you, first discuss the possible consequences with your legal advisor. There are other options available that can reduce probate fees and simplify the administration of your estate but that is not fraught with such risk.

Contact our legal team to gain clarity and insight today.