Joint tenancy arrangements are common estate planning tools that can help avoid probate fees and simplify asset transitions, but they come with important legal considerations and potential pitfalls.
Why Do People Use Joint Tenancy Arrangements?
- Possibly avoid the need for probate & thus save probate fees (1.4% of the gross value of the estate in BC)
- It’s “simple”
- Greater privacy
- Avoid wills variation challenges (in BC)
- Assist with management of assets of an elderly or incapable person
The Four Interpretations of Joint Tenancy
When property is held in joint tenancy, there are four possible legal interpretations:
- True Joint Tenancy: Each owner has an undivided interest as both legal and beneficial owner. This represents a true gift/disposition of interest when created, and the entire interest passes to the surviving owner by right of survivorship.
- Resulting Trust: The original owner retains all beneficial interest, with the joint arrangement existing merely for convenience. Upon the original owner's death, the surviving owner holds legal title as trustee for the estate of the original owner.
- Pecore Arrangement: The original owner retains all beneficial interest while alive, but gifts the "right of survivorship" to the other party. This means that upon the original owner's death, all beneficial ownership transfers to the surviving owner.
- Sawdon Arrangement: Similar to the Pecore arrangement, except the surviving owner holds the property upon trust for others after receiving it by right of survivorship.
Key Legal Precedents
Two Supreme Court of Canada cases significantly shaped the law around jointly held property:
- Pecore v. Pecore (2007): Established that when an adult transfers property into joint names with an adult child, there is a presumption of resulting trust.
- Madsen Estate v. Saylor (2007): Reinforced that the presumption of advancement (presuming a gift was intended) only applies to transfers between parents and minor children, not adult children.
Documentation is Critical
The intention of the transferor at the time of creating the joint tenancy is paramount. Without clear documentation, disputes commonly arise after death. Courts will consider:
- Bank account documentation
- Control and use of the funds
- Granting of powers of attorney
- Tax treatment of the assets
- Subsequent evidence relevant to original intention
Proper documentation should clearly state the transferor's intention through one of the following:
- Deed of Gift: For true joint tenancy or Pecore arrangements
- Bare Trust and Agency Agreement: For resulting trust arrangements
- Declaration of Trust: For Sawdon arrangements
Common Problems With Joint Tenancy
- Lack of evidence of intent: Leading to family conflicts and litigation
- Assets inadvertently caught by probate: Potentially negating the probate fee savings
- Loss of control: The original owner may need all joint owners to consent to transactions
- Exposure to creditors: The original owner's assets may be exposed to joint owner's creditors
- Unintended tax consequences: Including potential capital gains tax issues
- Mortgage issues: Lenders may call loans if ownership transfers without consent
- Family law implications: May affect matrimonial property division
Severing a Joint Tenancy
Sometimes it's necessary to convert a joint tenancy to a tenancy in common (where each owner's share passes through their estate). This can be done by:
- Unilateral conveyance by one owner to themselves
- Mutual agreement between all owners
- Course of conduct showing owners treated interests as tenancy in common
- Court order
- Legislative provisions (such as family law provisions)
Bottom Line
While joint tenancy can be a useful estate planning tool, proper documentation of intention is essential to avoid family disputes and ensure your wishes are carried out. It’s important if you are considering putting assets into joint tenancy as an estate planning mechanism to first seek professional legal advice to ensure your joint tenancy arrangements will achieve your intended goals.
Nicole Garton is president and co-founder of Heritage Trust.
Recognized by Best Lawyers in Canada for trusts and estates and family law, she previously chaired the Canadian Bar Association Wills and Trusts Subsection (Vancouver).
Contact Nicole by email or phone at (778) 742-5005 x216.
Heritage Trust is a leading non-deposit taking financial institution, regulated by the BC Financial Services Authority (BCFSA), a government agency of the Province of British Columbia. Heritage Trust offers caring and professional executor, trustee, power of attorney, committee, escrow and family office services to BC resident clients.
We welcome you to contact us.