People often put assets into joint names to avoid probate fees and simplify estate matters on death. But they aren't always aware of some of the complicated and costly problems this approach can cause.
"I have had the following scenario on multiple occasions," says David Chalmers, who specializes in retirement planning at Nicola Wealth Management. "A person dies. The home was in joint tenancy.
So the surviving spouse (usually a widow) becomes sole owner.
"She (who is perhaps in her mid-80s) asks: 'Should I put my house in joint names with my son? I think that reduces probate fees.'" Chalmers tells the widow, "no," because: n There will be B.C. Property Transfer Tax to pay.
- Your son's interest will not qualify as a principal residence if he already owns a home or doesn't live with you.
- If there are several children you will need to re-draw your entire estate plan, or you will need to trust your son to share the proceeds of the home with his siblings.
- If you need to sell the home one day to move to a condo or senior's residence, you will need your son's permission and you will have to share the proceeds with him.
- If your son divorces, his interest in the home could be property that is subject to claims by his ex-partner.
- If your son has an extra glass of wine at a restaurant and hits a pedestrian while he is driving home, he could get sued for millions and your house could be an asset that is liquidated.
Chalmers concludes: "It's best to just keep the house in your name and pay the approximately 1.4 per cent B.C. probate fee after death."
Another typical case involves parents who put a holiday cottage into joint tenancy with right of survivorship (JTWROS) with their adult children.
This means the last adult child to die will have full ownership - which could then cut out her or his siblings' children.
Bottom line: get expert legal and tax advice if you are thinking of putting an investment or other asset into joint names.
Mike Grenby is a columnist and independent personal financial advisor; he'll answer questions in this column as space allows but cannot reply personally. Email [email protected].
