Jointly held assets, whether real estate, bank accounts or other investments are not part of the Estate. There is a right of survivorship and by law the asset becomes the property of the surviving joint owner, regardless of what the Will says or whether or not there is a Will. Probate fees are not payable on the value of such assets, and ownership can pass without the necessity of a Certificate of Appointment of Estate Trustee with a Will (formerly called Letters Probate). If a client arranges his or her affairs so that most of the assets are owned by him or her with another as joint tenants, the value of the property is not part of the Estate for probate fee purposes until the death of the second owner.

Although jointly held property is not part of an Estate for purposes of probate fee calculations, capital gains tax may be due on the increase in the value of the property at the time of death unless the joint property is not capital property (as defined in the Income Tax Act), is a principal residence or is passing to a surviving spouse. Where taxes are payable, as often happens with cottages and other secondary properties that do not qualify as a principal residence, the Estate will be liable to pay taxes. This may mean that the surviving joint owner gets the property free of taxes and the beneficiaries named in the Will are on the hook for the capital gains taxes on that property. This result may be unintended where a person leaves a property to one heir as a joint tenant and assets of equivalent value to another heir under the will. Although the assets are of equal value, the person inheriting under the will bear the burden of all income taxes, including those relating to the property held as joint tenants.

Not all co-ownership of property is joint with ownership passed by survivorship. If the ownership is not specified to be joint, it is deemed to be tenancy in common. If you are unsure, it is wise to check the actual Deeds or title documents. Unless the Deed specifies “jointly not as tenants in common” or “as joint tenants”, the two owners each have an undivided one half interest in the property that will pass through their respective estates.

Bank accounts and other assets held on joint account with right of survivorship pass to the surviving owner on the death of the first owner, in the same way as real estate. As with real estate, the transfer of securities already held in the name of one owner into joint tenancy with a spouse carries no tax consequences. However, if the new joint owner is not a spouse there may be a deemed disposition by the original owner, of one half the value of the asset transferred into joint ownership, and an immediate income tax consequence of such deemed disposition.

Some people keep a small joint bank account to ensure that at death, a family member or friend can access monies to pay bills. A Power of Attorney is no longer valid after a person dies so access to an account by a Power of Attorney will not accomplish the same objective.

Problems can and do arise however, when such a planning technique is used not to pay small bills but as a means of distributing an estate and avoiding probate. Typically a parent puts the asset in joint account with one of the children with the intention that it should be divided equally among all of the children. Unless this plan has been properly documented when established, bitter disputes can break out between the surviving joint account holder who insists the entire balance in the account ought to go to him or her by survivorship while the remaining siblings argue that the joint account was for convenience only and not intended to benefit only one of several siblings.

When a person is looking to simplify his or her affairs or avoid probate fees by using joint ownership of real estate or bank accounts and securities, it is important to look at the big picture and the long term results of such actions. If the person is attempting to save probate fees, it is important to make sure that the tail is not wagging the dog. For example, an Estate worth $50,000.00 would pay only $250.00 in probate fees. For an estate worth $250,000.00, probate fees would be $3,250.00. Most often the loss of sole and complete control of the asset does not outweigh the benefit of saved probate fees. An exception to this might be where the owner of the asset knows he or she is in the final stage of life, and control of assets is not their primary concern.