The Perils of Parent / Child “Joint Tenancy”

2019 has been a busy year for estate litigation here at McEachern Harris & Watkins, and one theme that has come up repeatedly is court battles arising out of poor estate planning in the creation of joint tenancies.

The situation is common enough: an elderly parent decides to transfer ownership of her home into “joint tenancy” with her adult children.  The plan is that upon her death, her children can immediately have ownership transferred to them as the surviving joint owners.  Because the home is not part of her estate, there is a significant savings in probate fees, and the delay of waiting for the grant of probate of her Will is avoided.

What could go wrong?  Well, if planning is not done carefully, there are a number of potential pitfalls. 

What happens if one of the new joint owners gets divorced, or has creditors pursue him for debt?  Liens might be filed against that child’s interest in the home, tying up the whole property.

Or suppose the parent later needs to sell the home – for instance, to pay for the costs of extended care.  This will now require the cooperation of her co-owners, and if they refuse to go along with the sale things might get ugly.  Even if the children agree to the sale, the co-owners might be subject to capital gains tax on the increase in the value of their “shares” in the house, since they did not reside there.

Worst of all, suppose the parent changes her mind.  Can she force the co-owners transfer back the property for free?   Most people would assume this was the case.  However, in a recent case we handled, the BC Court of Appeal agreed with our argument that a parent in creating a joint tenancy had gifted the co-owners a “right of survivorship”, and a true gift like that cannot simply be taken back by the giver! 

In addition to all that, the creation of a joint tenancy with only one or some of a parent’s children, but not all of them, may create still more confusion.  Did the parent intend to benefit only the favoured kids?  Or were the joint owners supposed to share with their siblings?  There is a good chance that in the absence of written proof of the parent’s intentions, an unhappy child not on title may bring a court action which could undo all the parent’s plans and eat up all the savings achieved.

To avoid these problems, our lawyers when creating joint tenancies of the type just described usually recommend that a trust agreement also be prepared.  This agreement is signed by all of the new owners, and sets out clearly their intentions and their obligations to one another for the future.  That is an extra cost up front, but the savings down the road can be huge if a lawsuit is avoided.

(Of course, if it is already too late, Tim is more than happy to help out with that lawsuit!)

 

The information contained in this article is for general purposes. It does not constitute legal advice. It is not to be construed as a warranty, guarantee and should not be relied on. Do not act on the information in this website without consulting your lawyer or a lawyer who can provide legal instructions relevant to the full scope of your matter.