Joint Tenants vs. Tenants in Common: Which Is Right for You?
When two or more people purchase property together in Ontario, one of the most important decision is how they will hold title. The two most common forms of co-ownership are joint tenancy and tenancy in common. The distinction may appear technical, but the manner in which title is held can have significant implications for estate planning, succession, probate, tax obligations and what ultimately happens to an owner’s interest upon death. The appropriate form of ownership may also depend on the relationship between the owners and the purpose of the purchase. The form of ownership should reflect the purchasers’ intentions, their respective financial contributions and, importantly, what they want to happen to their interest in the property if one of them dies.
What Is Joint Tenancy?
Joint tenants own the property together with a right of survivorship. This means that when one joint owner dies, that person’s interest in the property generally passes automatically to the surviving joint owner or owners rather than forming part of the deceased owner’s estate.
For example, if spouses own their home as joint tenants and one spouse dies, the surviving spouse generally becomes the sole owner of the property by right of survivorship.
This can simplify the transfer of the home following death and is one reason many spouses choose to own their matrimonial home as joint tenants.
Joint Tenancy Between Spouses
For many married couples purchasing their family home together, joint tenancy may be appropriate. If one spouse dies, the surviving spouse generally acquires the deceased spouse’s interest by survivorship without that interest having to pass through the estate.
However, joint tenancy should not be selected automatically simply because the purchasers are spouses. The couple’s estate plan, family circumstances and intentions for the property should also be considered. This becomes particularly important in second marriages and blended families.
Joint Tenancy Between a Parent and Child
Parents sometimes add an adult child to title as a joint tenant with the intention of simplifying their estate or avoiding probate. However, this arrangement should be approached carefully. On the death of one joint tenant, legal title will generally pass to the surviving joint tenant by right of survivorship rather than through the deceased owner’s estate. However, where the surviving joint tenant is an adult child, survivorship alone does not necessarily determine who is beneficially entitled to the property. Depending on the circumstances, the adult child may be required to establish that the parent intended to make a gift of the property and that the right of survivorship should stand. If that intention cannot be established, the child’s interest may be held in trust for the deceased parent’s estate.
Additional complications may arise where the property is a matrimonial home or the deceased is survived by a spouse or other beneficiaries. If there is a surviving spouse who is not on title of a matrimonial home, the title would not automatically pass to the surviving adult child. Joint tenancy would be considered as severed, and therefore, the share of the deceased spouse would pass to their surving spouse. For these reasons, adding a child to title should form part of a considered estate plan rather than simply being used as a method of avoiding probate.
What Is Tenancy in Common?
Tenants in common also own property together, but there is no right of survivorship. Each owner has a separate interest in the property, which can be equal or unequal—for example, 50/50, 70/30 or another agreed proportion.
When a tenant in common passes away, their interest does not automatically pass to the other owner. Instead, it forms part of their estate and is distributed according to their Will or, if there is no valid Will, Ontario’s intestacy laws.
Second Marriages and Children from Previous Relationships
Consider a couple where each spouse has children from a previous marriage.
If the spouses purchase a home as joint tenants, when the first spouse dies, that spouse’s interest will generally pass automatically to the surviving spouse—not to the deceased spouse’s children from the first marriage as intended by the surviving spouse.
The surviving spouse may ultimately leave the property to their own children, sell it, refinance it or otherwise deal with it. As a result, the children of the spouse who passed away first may never receive any portion of the property, even if that was not what their parent intended.
In these circumstances, tenancy in common may be more appropriate as part of a properly structured estate plan. Each spouse can then address their interest through their Will or other estate-planning arrangements. Depending on the estate plan, this can allow a spouse to provide for the surviving spouse while also protecting an intended inheritance for children from a previous relationship.
Holding Title With Your Parents
Another increasingly common situation arises when parents help an adult child purchase a home.
A lender may require a parent to be registered on title because the child cannot qualify for the mortgage independently. In other cases, the parent may actually contribute to the down payment and intend to own part of the property.
Parent on Title for Financing Purposes Only
If a parent is placed on title solely because the lender requires it and is not intended to have a beneficial ownership interest, the parties should obtain legal advice about properly documenting that arrangement. Simply calling the parent a “1% owner” or putting the parent on title does not, by itself, determine the beneficial ownership arrangement. The parties’ intentions and appropriate documentation are important.
Parent Is Actually Contributing and Owning Part of the Property
The situation is different where the parent contributes money and intends to own an actual share of the property. Tenancy in common can be useful because it clearly allows for unequal ownership interests and each owner’s interest can be dealt with separately through their estate.
However, the parties should also consider what happens if one owner dies, wants to sell, needs their money back, becomes incapable, separates from a spouse or has financial difficulties. A co-ownership agreement should be considered to address these issues.
Adding a Parent or Child to Title Later
Adding someone to title is not simply an administrative change. It can create Land Transfer Tax, income tax, estate-planning consequences.
For Ontario Land Transfer Tax purposes, the assumption of mortgage debt can constitute consideration. For example, Ontario specifically provides that where a parent transfers a portion of their interest in a mortgaged property to a child, the consideration generally includes percentage of the outstanding mortgage balance, together with any other consideration being provided. Accordingly, transferring “1%” or “50%” of a property to a family member for nominal consideration does not necessarily mean there will be no Land Transfer Tax. Legal and tax advice should be obtained before adding or removing someone from title.
Can You Change From Joint Tenants to Tenants in Common?
Ownership can generally be changed from joint tenancy to tenancy in common. This sometimes occurs as part of estate planning, following a change in family circumstances or during a separation.
Ontario’s Ministry of Finance states that a simple change in legal tenure between the same owners, from joint tenancy to tenancy in common or vice versa, is not treated as a conveyance for Land Transfer Tax purposes where the applicable requirements are satisfied. However, changing the form of ownership can have significant estate consequences, particularly because changing from joint tenancy to tenancy in common removes the right of survivorship.
What About Transfers Between Spouses?
Ontario provides Land Transfer Tax exemptions for certain transfers between spouses and former spouses. However, not every transfer between spouses is automatically exempt. The applicable exemption depends on the circumstances and consideration involved.
A couple considering adding a spouse to title, removing a spouse from title or changing ownership percentages should therefore obtain advice before completing the transfer as each circumstances are unique.
Which Form of Ownership Is Right for You?
There is no single answer that works for every family.
Joint tenancy may be appropriate where:
- spouses want the surviving spouse to automatically receive the property;
- the owners have a common estate plan; or
- the right of survivorship reflects the owners’ actual intentions.
Tenancy in common may be appropriate where:
- owners contributed different amounts and want different ownership percentages;
- unrelated individuals are purchasing together;
- parents and adult children are true co-owners;
- owners want their share of the property to pass through their estate; or
- spouses have children from previous relationships and want to preserve their respective interests as part of their estate plans.
The form of ownership should ultimately reflect who actually owns the property, what each person contributed, what should happen when one owner dies and how the arrangement fits into the owners’ broader estate plan.
The best time to decide how title should be held is before the purchase closes. Changing ownership later may require additional legal work and can create tax, mortgage and estate-planning consequences.
If you are purchasing property with a spouse, a parent, an adult child or another person, speak with your real estate lawyer about how title should be structured. Where estate-planning considerations are involved, particularly in blended families, the ownership of the property should also be reviewed together with your Wills and overall estate plan.
Choosing how to hold title should be a deliberate part of your real estate transaction, not a box checked at closing. If you are buying property with a spouse, parent, adult child or another co-owner, or you are considering adding or removing someone from title, MBLAW Professional Corporation can help you review the available ownership options in light of your contributions, financing arrangements, family circumstances and longer-term plans. Our real estate team can explain the legal implications of joint tenancy and tenancy in common, identify issues that should be addressed before registration, and prepare the transaction so that title is registered in accordance with your instructions. Contact MBLAW before your purchase closes or before changing an existing title to discuss the ownership structure that reflects your intentions.
