When two or more people purchase a property in British Columbia together, they can own that property in one of two ways: Joint Tenancy or Tenancy-In-Common. What to choose? Here are some things to consider when making that decision.
Tenancy-In-Common
Tenancy-In-Common is a form of combined ownership, whereby each person owns an undivided share in the property. The shares must add up to 100%. The registered owners can have equal or unequal undivided shares in the property.
Under a Tenancy-In-Common, when one of the registered owners passes away, their share in the property does not “automatically” pass to the other surviving registered owner(s). Instead, that deceased’s share forms part of their estate, which will pass to their beneficiaries in accordance with their Will.
For example, business partners and unrelated people who own property together often decide to own the property as Tenants-in-Common.
Joint Tenancy
Joint Tenancy is the other form of combined ownership, whereby all of the registered owners own the entire property together at the same time. There is no undivided share in the property for one of the registered owners. Accordingly, if one of the registered owners passes away, the surviving registered owner(s) will continue to own the entire property. Due to this right of survivorship, there is no transfer of property required to put the property into the survivor’s name. A property owned under a Joint Tenancy would not form part of the deceased’s estate.
Although related individuals who own property together, particularly people in marriages or in common-law relationships, usually decide to own the property as Joint Tenants, that decision should not be made so hastily. For example, for people in their second or third marriage, there may be children from their previous marriage/relationship that they have to consider when determining who acquires their share in the property.
Combination of Joint Tenancy and Tenancy-In-Common
If three or more people are buying a property together, they have another choice besides being just Tenants-in-Common or just Joint Tenants—that is, a combination of the two.
Given the current state of the real estate market, two married couples buying one house together is quite commonplace. You also see it where young first-time homebuying couples have to add their parent(s) on title for mortgage purposes.
Scenario:
Two couples own a property together. Mr. and Mrs. Nguyen own an undivided 50% share in the home. Mr. and Mrs. Porrelli own the other undivided 50% share in the home. If the Nguyens pass away, their 50% share would not “automatically” go to the Porrellis, and vice versa.
Mr. and Mrs. Nguyen own their 50% together as Joint Tenants. If Mr. Nguyen passes away, Mrs. Nguyen—as the surviving registered owner—would own that 50% share solely. If Mrs. Nguyen were to pass away, her share in the property would form part of her estate and go to her beneficiaries, in accordance with her Will.
Mr. and Mrs. Porrelli own their 50% together as Tenants-in-Common, whereby Mr. Porrelli has an undivided 25% share and Mrs. Porrelli has an undivided 25% share. The reason the Porrellis decided to be Tenants-in-Common is that this is their second marriage. They each have children from their past marriages. They do not want their share in the home to “automatically” go to each other—they want their share to go to their children, in accordance with their Will.
Joint Tenancy as a Gift or Trust
With an aging population, more parents are considering transferring their home into a joint tenancy with their children, as a means to avoid/minimize the process and cost of probate or administration of the estate. There are many issues to consider before adding one’s children to one’s home, which is beyond the scope of this blog post.
But if a parent wants to add their children to title under a joint tenancy, the parties’ intent behind this property transfer should be documented beforehand. This is especially important when only one of that parent’s children is being added. Under a joint tenancy, that child would be the sole registered owner of that property upon the parents’ passing. What about the other children? The potential for abuse/greed/fraud exists.
Was the transfer of property into a joint tenancy an actual gift to the child, where the child on title is not just a registered owner in name only—he or she has an actual beneficial interest in the property? If so, the appropriate deeds of gift should be prepared and executed.
Or was the transfer into joint tenancy for convenience only, where the child’s name may be on title, but he or she is holding the property in trust for the parent? If so, then the appropriate trust agreements should be prepared and executed.
Estate Planning
Regardless whether one decides to own property together as Joint Tenants or Tenants-in-Common, people should still get their will and other estate planning documents done.
At some point in time, there will just be one sole owner of that property. Furthermore, due to relatively recent legislative changes, even under a joint tenancy, where the owners die “simultaneously”, the property will be treated as if it were held by those owners as Tenants-in-Common.
Call our office at 250-768-0717 to set up a consultation with one of our estates lawyers to go over your estate planning needs.
Conclusion
It is not a simple decision to want to be Joint Tenants or Tenants-In-Common—it should be a decision you make after discussing the matter with your realtor, lawyer, estate/financial advisor, and accountant. And, of course, with the other owners. If you have any questions about this post, please contact one of our lawyers at 250-768-0717.
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