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The primary difference between the two relates to the right of survivorship. Joint tenancy is often referred to as “the last man standing”. When an asset is held in joint tenancy, upon the death of one joint tenant the asset passes to the other joint tenant and does not form part of the estate of the deceased. When an asset is held as tenants-in-common, upon the death of one owner their share of the asset will form part of their estate and is distributed under the terms of their will.
When real property is owned by two or more persons, legal ownership is presumed to be tenancy in common, unless it is specifically identified to be held in joint tenancy. When other assets such as bank accounts, investments and vehicles are owned by multiple people, legal ownership is presumed to be joint tenancy unless otherwise indicated.
So that takes care of the differences. The real question, however, is why do we care?
Although any estate plan needs to be tailored to the individual, a few general themes emerge. Most people want to:
When an asset is held under tenants-in-common, each person owns a specific percentage. For example, a parent (say, a mother) and a child may each own a 50% undivided interest in a family cottage as tenants-in-common. The parent can sell her 50% interest in the property or leave it to whomever she wants under the terms of her will. When she dies, her 50% interest forms part of her estate and is likely taxable, will be subject to probate fees and is subject to the terms of her will.
Joint tenancy, however, works differently. Joint tenancy is frequently used between spouses for assets such as real property, investments, bank accounts and vehicles. Because joint tenancy creates the right of survivorship, when the spouse dies the property will transfer to the other spouse with minimal administrative issues. Because it does not form part of the estate, probate fees will not apply. Joint tenancy can also ensure the assets are passed to the intended person as they should not be affected by claims under the wills variation act (although see below for more on this).
Joint tenancy is also becoming more common between parents and children. You have probably heard of someone who has been advised to add their child as a joint owner of their family cottage. The benefits of doing this are the same as noted above. However, there are a number of possible issues that should be looked at when considering adding your child as a joint tenant:
Joint tenancy can be a valuable tool for estate planning. The benefits are clear and it is relatively simple to set up. However, it is important to understand the potential tax and other issues associated with joint tenancy before making the decision.
Please consult your MNP Tax advisor for more details regarding estate planning.
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