The Benefits and Pitfalls of Joint Ownership

30 Jul The Benefits and Pitfalls of Joint Ownership

When protecting an asset like your home, the easiest, most obvious solution may not be the best one.

Let’s say your spouse has passed and your kids are grown. You invite your new partner to move in with you – but you don’t want to get married again because you’re concerned it will complicate your estate.

Years later, you decide to add your partner’s name to the deed on your house. You were concerned about your partner having a place to live after you die, and someone told you it might even save you money in the long run. Ultimately, however, there may be better methods of achieving the same goal.

Adding a name to an asset, also known as joint ownership and joint tenancy, is a form of concurrent co-ownership. It applies to property of all kinds, from houses and boats to bank accounts and RRSPs. If two people claim joint tenancy, it means both parties can claim ownership. In fact, this means that each party has a legal right to possess the property and use it.

In theory, this sounds like the perfect solution for passing along an asset outside a will. The main benefits of joint tenancy include:

• Avoiding probate courts and fees. Joint tenancy allows the property to pass directly to the surviving owner, outside the will. This means the inheritance is available immediately. The surviving partner assumes ownership of the entire property.
• Sharing responsibility for the property. Joint tenancy places equal responsibility for the asset on all the owners. This means each owner can enjoy the benefits of the property – but each also bears the burden of it. All owners go into debt together, if necessary.
• Maintaining continuity. Joint tenancy makes inheritance simpler. When one owner dies, the other owner receives the share of the property under a “right of survivorship.” The asset doesn’t get tied up in probate and it doesn’t get frozen while the estate is under review. The surviving owner can do as he or she sees fit.

On the other hand, joint ownership is also fraught with complicated issues. The main pitfalls include:

• Needing agreement. Joint tenancy requires that all owners agree to take specific actions, such as sell or mortgage a property. If the partners are in an unstable relationship, it can be challenging to reach agreement. This may stall attempts to make a decision and liquidate the asset.
• Freezing bank accounts. In some situations, bank accounts that fall under joint tenancy may need to be frozen to satisfy a financial problem (i.e., debt). Frozen bank accounts – and the money in them – are not accessible to anyone.
• Losing control of the asset. In joint tenancy, the deceased has no control over what happens to the property after his or her death. Because the property immediately comes under the ownership and control of the other owners, there is no way to pass any part of the asset to other beneficiaries or even to have any influence about what might be done with the asset.

For these reasons, many believe joint tenancy is dangerous. One alternative is to use tenancy in common, which allows each owner to have a fractional ownership of the asset (which may or may not be an equal portion). In this scenario, the deceased owner can pass his or her portion on to an heir, and the surviving owner(s) can still retain control over their portions, even selling it if they desire. Consider your goals and wishes and decide which type of tenancy is right for you.

To learn more about preparing your estate, contact us.

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.