Co-owners of real property and certain types of personal property can own such property as either “joint tenants” or as “tenants in common”. While joint tenants have identical and indivisible proportions, durations of interest, and identical rights of possession, tenants in common have defined shares and are, for all intents and purposes, treated by the law as distinct and separate individual owners of the common property.Joint tenants benefit from the “right of survivorship” which means that the survivor of the joint owners automatically inherits the entire and sole ownership of the property in question. Tenants in common own their respective shares of the property separately and, consequently, the surviving beneficiaries of a deceased tenant in common owner of property are entitled to the deceased’s interest as opposed to the surviving tenant in common owner. In turn, property passing to the beneficiaries of a deceased tenant in common will be subject to estate administration and Estate Administration Tax. Property afforded “right of survivorship” on the other hand will pass to the surviving joint tenant outside the terms of the deceased’s Last Will and Testament or outside the reach of Ontario’s intestacy laws. The distinct advantage is accordingly tax savings and avoidance of estate administration costs.
Despite the advantages that come from tax efficient estate planning and cost saving passing of valuable assets to one’s intended beneficiaries, joint tenancy is not always appropriate and one’s circumstances need to be accurately assessed with the assistance of competent legal and accounting advice. For example, income and gains tax consequences associated with the surviving joint tenant inheriting real property not qualifying as the deceased’s principal residence may deplete the asset more so than if the asset passes through the deceased’s estate. Also consider the possibility that if one’s spouse is not the surviving joint tenant, not only would the deceased’s estate have to account for earned and assessed income and capital gains taxes (save and except for real property qualifying as a principal residence) but the deceased’s spouse would be precluded from benefiting from the property which would automatically vest in the surviving joint tenants name.
Joint tenantly owned property may furthermore become the subject of a creditor’s claim which may jeopardize the value of the asset for the co-joint tenant owner who would otherwise not be accountable to the partner’s creditor.
A final concern is with respect to jointly held bank accounts. While “right of survivorship” affords estate free passing of the account to the surviving account owner, other beneficiaries of a deceased not named on the bank account may stand to loose in the event that the survivor on the account does not or is not compelled by law to share the proceeds with other entitled persons.
The foregoing is intended to not only explain the basic differences between joint tenancy and tenancy in common but also intended to point out the importance of consulting legal counsel when deciding on which form of joint ownership to opt for given the many variables that ought to inform the decision making process.