FIVE THINGS TO CONSIDER WHEN DECIDING HOW TO OWN A PROPERTY WITH ANOTHER PERSON
When you purchase a property in BC with another person (or other people), you can own that property in one of two ways: Joint Tenancy or Tenancy-In-Common. When making that decision, consider these five issues.
1. What is Tenancy-In-Common?
Tenancy-In-Common is a form of combined ownership, whereby each person owns an undivided share in the property. As long as all the shares add up to 100%, the owners can have equal or unequal shares in the property.
Under a Tenancy-In-Common, when one of the owners passes away, their share in the property does not “automatically” pass to the other owner(s). Rather, that deceased’s share will pass to their beneficiaries in accordance with their Will.
Business partners and unrelated people who own property together often decide to own the property as Tenants-in-Common.
2. What is Joint Tenancy?
Joint Tenancy is another form of combined ownership, whereby all of the owners own the entire property together at the same time. There is no undivided share in the property for one of the owners. Accordingly, if one of the owners passes away, the survivor(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 normally decide to own it as Joint Tenants, that decision should not be made so quickly or easily. For example, if you and your spouse are buying a home, what about the children from your previous marriage/relationship? Would you rather your share in the home go to your children instead of your spouse?
3. Combination of Joint Tenancy and Tenancy-In-Common
If three or more people are buying a property together, you have another choice besides being Tenants-in-Common and 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.
Scenario:
Mr. and Mrs. Chan own an undivided 50% share in the home. Mr. and Mrs. Jones own the other undivided 50% share in the home. If the Chans pass away, their 50% share would not “automatically” go to the Joneses, and vice versa.
Mr. and Mrs. Chan own their 50% together as Joint Tenants. If Mr. Chan passes away, Mrs. Chan—as the surviving owner—would own that 50% share solely. If Mrs. Chan were to pass away, her share would go to the beneficiaries, in accordance with her Will.
Mr. and Mrs. Jones own their 50% together as Tenants-in-Common, whereby Mr. Jones has an undivided 25% share and Mrs. Jones has an undivided 25% share. The reason for being 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.
4. Joint Tenancy: Gift vs. Trust
As the population ages, 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. 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 you end up adding your children to title under a joint tenancy, the parties’ intent behind this property transfer should be determined and documented beforehand. This is especially important when only one of your children is being added. Under a joint tenancy, that child would be the sole owner of that property upon the parents’ passing. What about your other children?
Was the transfer of property into a joint tenancy an actual gift to your child, where the child on title is not just an 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 of the parent? If so, then the appropriate trust agreements should be prepared and executed.
5. Get a Will Done
Regardless whether one decides to own property together as Joint Tenants or Tenants-in-Common, you should still have a Will 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.
Conclusion
As you can see, it is not a simple decision to make whether you and the other buyers want to be Joint Tenants or Tenants-In-Common—it should be a decision made after discussing the matter with your realtor, lawyer, estate/financial advisor and accountant. If you have any questions about this post, please contact Lewis Nguyen at lewis@dbmlaw.ca or 604-937-6373.