Five Risks to Holding Property Jointly

Holding property jointly has long been called the “poor man’s will” – a way for a person to transfer wealth on death without spending the money to draw up proper documents.  It’s also an appealing way for married couples or parents to minimize probate taxes in provinces where rates are high.

The highest probate tax rates:

Nova Scotia:  $15.23 per $1000 in excess of $100,000

Ontario:  $15.00 per $1000 in excess of $50,000

British Columbia: $14.00 per $1000 in excess of $50,000

So, if you are considering transferring property into joint ownership with a spouse or child; consider the following risks:

1.       If you put property into the name of only one of your children, and that child then claims you wanted him to be the sole property owner, there is bound to be a fight when you die.  The other siblings will argue you made the arrangement for convenience and their brother is merely holding the property in trust for the estate.  Can cause a costly legal battle.

2.       A gifted interest in a property cannot be recovered without the consent of all owners.  A separation from your spouse or an estrangement from one or more of your children could leave you with a bad case of donor’s remorse.

3.       The transfer can have immediate negative tax consequences by means of capital gains tax.

4.       If any of the joint owners gets into financial trouble or a divorce-related property fight (or any other legal dispute), the property may be at risk.

5.       If the property has the potential to generate significant income or capital gains after you die, a testamentary trust may be a better option.  These trusts are created under a taxpayer’s will and are taxable at graduated rates.  This opens the door to income-splitting that, over time, can generate enough income tax savings to dwarf the probate taxes.

There is nothing wrong with Joint Ownership in the right situation, but before proceeding consult with your financial, tax and legal specialists who can explain the risks.

Enjoy your weekend,

Tracey

Article originally published on Advisor.ca, filed by Barry Corbin, editor@Advisor.ca