JOINT TENANCY WITH A CHILD
Because it recently has become fashionable for spouses to place land ownership in joint names with each other, some parents are placing titles in joint names with children. The reason most frequently given is that it is much cheaper and easier to administer an estate when titles are registered jointly.
While the latter statement is usually true, it is not a black and white issue, and there are some very valid reasons why spouses ought to hesitate before placing titles into joint names between themselves. However, when it comes to children, there is some reason to pause and consider the consequences prior to placing titles and bank accounts in joint names with children. Following are some reasons why joint property with children is not advisable.
Loss of Control
A child's consent will be necessary for the parent to deal with joint property and, in particular, in relation to land. If there is a breakdown in the relationship between the parent and the child, the child may refuse to return the property to the parent, refuse to agree to the sale of the property, or insist upon receiving some of the sale proceeds.
A chartered accountant cited a case in the Globe & Mail (November 8, 1997) where a mother transferred an investment, valued at $400,000.00, into the joint names of her son and herself. Canadian Customs & Revenue Agency deemed this to be a taxable transaction and the mother became liable for capital gains tax, resulting in income tax of $56,250.00.
Cost - If it is land, the cost of the transfer and Land Titles Office fees are immediately payable, while the cost of administering an estate is only incurred at death, and only if you still own the land at the time of death.
Creditors of Child - Property in joint names with a child can become subject to a claim by creditors of the child.
Such joint property may become subject to a claim of the child's spouse in the event of a marriage breakdown between the child and his or her spouse.
No Testamentary Trust
There are substantial income tax benefits to a child who receives a bequest through a testamentary trust. These benefits are not available when the property is passed through the right of survivorship (joint tenancy).
There are occasions when a child predeceases a parent. Usually, under such circumstances, a parent may wish to benefit the grandchildren of the deceased child. The parent may be incapable of changing his/her Will and the property will revert back to the parent, to be divided in accordance with the parent's Will, which may provide for equal division among the remaining children of the deceased parent. Thus the grandchildren (children of the deceased child) may not benefit.
The joint tenant, whether spouse or child, may, through accident or illness, become mentally incapacitated. You may find yourself having to deal with that person's legal guardian. In such an event you will not be able to do anything but allow the process of law to determine its use, and ultimate disposition.
If the property placed in joint names is a principal residence, and one of the title holders does not reside there, there is a question as to whether or not the principal residence exemption will be available for capital gain for the years after the transfer.
In addition to income tax, by placing property in joint names one may incur goods and services tax. This can result in tax being payable immediately upon conveyance into joint names.
Joint tenancy complicates and adds to the cost of the drafting of Wills. Unless sufficient time and thought is expended, a Will may consequently have unintended and undesirable results and may have to be rewritten.
There is a presumption at law that when assets are in joint names with a spouse, the deceased intended the spouse to retain the entire benefit upon death. When property is placed in joint names with children, the presumption is just the opposite, the child holds title as trustee for estate beneficiaries. Because documents are rarely signed indicating the intention of the parent and child, there has been much litigation among surviving children as to what intent the parent might have had when the parent transferred property into joint names with a child. This is especially true in relation to interests other than land, such as bank accounts and investments.
Joint tenancy with children can be a good idea, but it can also be a recipe for disaster. Before such a decision is made, one ought to carefully consider all the factors. One would be well-advised to consult with a lawyer before transferring an asset into joint names with a child. As in much of life, the issue of joint tenancy is not black and white!