Joint ownership: helpful or harmful?

Understand the pitfalls of this common estate planning strategy

Joint ownership with right of survivorship is a common way to try to avoid probate and reduce probate fees, especially in provinces with higher costs. However, while it can be helpful in the right circumstances, joint ownership can also create unintended tax issues, family conflict, and financial risks.

Understanding joint ownership and getting the right advice can help you avoid surprises, complications, and costly mistakes in your estate plan.

How joint ownership works

Joint ownership means an asset is owned by more than one person. It comes in two main forms:

1. Joint ownership with right of survivorship

When one owner dies, their share automatically passes to the surviving owner(s). The asset bypasses the estate and isn’t governed by the will. Because it can be done relatively easily and, in some cases, without engaging legal counsel, transferring assets into joint ownership (e.g., joint investment accounts and joint bank accounts) is a common strategy for estate and incapacity planning. The exception is in Quebec where it is not possible to have a right of survivorship.

2. Ownership as tenants-in-common (no right of survivorship)

Joint ownership without a right of survivorship is commonly referred to as “tenants-in-common”. Each owner holds a separate share (not necessarily equal) that can be sold, transferred, or left to someone in a will. There is no automatic transfer at death to other owners.

The concept of co-ownership in Quebec

Co-ownership in Quebec exists under the form of tenancy in common, whereby each co-owner has an exclusive right to their interest in the property. Under the Civil Code of Quebec, Quebec does not recognize joint tenancy with right of survivorship. Furthermore, Quebec does not impose any probate fees. If the will is notarized, no judicial probate is required. Wills that are not notarized must be probated, which incurs minimal fees.

Why some people use joint ownership

Joint ownership is often used to simplify estate or incapacity planning because it can:

Allow assets to transfer more quickly to a beneficiary, avoiding the delay of waiting for the estate to be administered
Potentially reduce probate fees if applicable, especially in provinces or territories with higher rates of probate
Provide privacy, since the asset doesn’t flow through the public probate process if applicable
Save on executor and legal fees (executor fees often based on the value of the estate)
Potentially protect assets from claims against the estate

While this can be helpful, especially between spouses, it can get tricky when joint ownership is used between a parent and an adult child – especially if you don’t understand all the implications.

The pitfalls: What you need to know

1. Unexpected tax consequences

Adding someone as a joint owner may trigger a deemed disposition for tax purposes at that time, which can result in immediate capital gains to the original owner. Also, all owners may also need to report future income and gains related to the asset. Tax and legal advice are needed to confirm tax implications. For principal residences, joint ownership can unintentionally reduce or eliminate a portion of the principal residence exemption.

2. Estate complications and family conflict

If a jointly held asset passes directly to a survivor, it may leave too few assets in the estate to fulfill gifts in the will or cover taxes or estate expenses. This can lead to disputes, especially if beneficiaries believe the asset should form part of the estate. When assets are put in joint names with an adult child, courts may apply a presumption of resulting trust, which presumes the child is holding the asset on trust for the estate and the assets form part of the deceased’s estate. The child could be forced to prove that joint ownership was intended as a gift to them with no conditions.

3. Exposure to creditors and relationship breakdowns

When you add someone as a joint owner, their financial risks become yours. That means the asset may be exposed to:

Their personal or business creditors
Claims in a divorce or separation
Forced sale to satisfy debts

.For example, if a parent adds an adult child to an investment account and that child faces financial trouble, the account may be vulnerable.

4. Loss of control and access issues

All joint owners typically have equal access to the asset, and risks could include unintended withdrawals, disagreements on how the asset is managed, and difficulty reversing or changing ownership without everyone’s consent.

The bottom line

Joint ownership can be useful in some circumstances, but it can put your estate plan at risk if not handled carefully. In many cases, a power of attorney for property may be a safer way to provide access for financial management without transferring ownership.

Before adding anyone to your accounts or property, speak with qualified legal or tax professionals. They can help ensure your estate wishes are protected and that you don’t experience unexpected risk.