When you purchase real estate with another or others, the real estate lawyer will ask you how you want to own it, whether as “joint tenants” or as “tenants in common”. The real estate contract itself does not specify this. The lawyer will explain some of the differences and can advise you, based on your circumstances.
Only a joint tenancy relationship carries with it the right of survivorship such that if one owner dies, the surviving owner automatically inherits the property. If there is more than one surviving owner, then they take the deceased’s interest in equal proportions. As a result, jointly held property does not form part of the deceased’s estate. All joint tenants always own an identical and equal portion of the property and equal rights to the entire property. There are several ways of “severing” a joint tenancy and this discussion is beyond the scope of this article.
If property is held as tenants in common, the interest in the property of a deceased becomes part of the estate of the deceased and is transferred to beneficiaries according to the deceased’s Will. If the deceased does not have a Will, it is distributed according to the provisions of the Wills, Estates and Succession Act [SBC 2009] Chapter 13. Tenants in common can hold equal or unequal shares in the property and can sell or mortgage (in some cases) their interest in the property without the consent of the other tenants.
Some people prefer joint tenancy in order to avoid probate fees, but there can be a number of complications with this approach including:
- attracting property transfer tax
- triggering income tax on the “disposition” of an interest
- possible loss of control of the property
- potential for claim from creditors on the registered interest of a debtor
- the mortgage of a joint tenancy property requires the unanimous agreement of all joint tenants
There are a variety of reasons some people prefer tenancy in common to joint tenancy, such as:
- purchasing property for investment purposes with persons that are not intended as beneficiaries
- purchasing property for investment purposes and allocating tenancy in common ownership interest in proportion to contributions in the property
- the wish to provide for children from a previous union
The analysis is complicated by the fact that the law distinguishes “legal ownership” to the property (whose name is registered on the title) from “beneficial ownership” (the real ownership) and recognizes that sometimes the legal owner is not the true owner of the property but merely holds the title to the property for the real owner. This is an important consideration for estate planning purposes, including the tax effects of property transfers (capital gains tax, probate fees, etc.) and the ability of creditors to reach the property held by a debtor. It is therefore imperative to obtain legal advice from a real estate lawyer before making these decisions, thereby avoiding unintended consequences and being assured that your intentions are carried out.