Joint Tenants vs Tenants in Common: What’s The Difference?

True or false: When you die, all assets and property you own become part of your estate and are passed on to the beneficiaries named in your Will.

It may surprise you to know that that statement is false. How you own an asset such as a bank account or piece of property determines whether it forms part of your estate at the time of your death.

In this blog post, we will have a look at two different forms of property ownership. When property is owned by more than one person, it can be owned as “tenants in common” or “joint tenants.” It’s important to understand the key differences between the two forms of co-ownership so you can decide which is right for you and which will achieve your estate planning goals.

Joint Tenants vs Tenants in Common

What is Joint Tenancy?

With joint tenancy, two or more people own the entire property together at the same time. Each owner has the equal right to use the whole property. There are no divided shares. All joint tenants own 100% of the property.

The law in BC presumes that an asset—such as a vehicle, bank account, or investment—owned by two or more people is held in joint tenancy, unless there is some indication that the asset is owned in shares or owned as tenants in common. For example, where two or more names are listed as account holders of a bank account and their respective shares in the account are not specified, BC law presumes they own the bank account as joint tenants.

The law is different when talking about ownership of land. Relatively recent legislative changes to section 11 of the BC Property Law altered the presumption that applies when land is transferred to two or more people. Because of these recent legislative changes, any land is presumed to be owned by co-owners as tenants-in-common in equal shares, unless the appropriate deeds state that they are joint tenants or specify the percentage of each owner’s individual interest in the land.

Joint Tenancy and the Right of Survivorship

The most significant feature of a joint tenancy is the right of survivorship. Survivorship means that when one of the joint tenants dies, his or her interest in the property automatically passes to the surviving joint tenant(s). The survivorship rule continues to apply until only one joint tenant remains alive; at that point, the last surviving joint tenant owns the full interest in the property as the sole owner.

Because property owned in a joint tenancy is automatically transferred to the surviving joint tenant(s) on the death of one joint tenant, the property does not become part of the deceased’s estate. That means the property is not distributed among the beneficiaries of the deceased’s estate. It also means that the property in question is not taxed as part of the deceased’s estate and is not subject to probate fees.

Joint Tenancy Can Play a Significant Role in Estate Planning

From an estate planning perspective, owning property as joint tenants offers several benefits—but it is not right for everyone. As mentioned, property held in joint tenancy passes to the surviving joint tenant(s) without the need for probate. This simplifies the estate administration process, avoids delays, and eliminates probate fees and taxes that might otherwise apply to that property. This is an effective way to bypass probate but may not be the best choice in a blended family, for example, where spouses in a second marriage each have children from a previous relationship. See below for more on that issue.

If carefully documented, a property transfer into joint tenancy during a person’s lifetime can protect that property from a will challenge or a wills variation claim pursuant to s. 60 of the Wills, Estates and Succession Act. Even if you don’t have a Will, you can use joint tenancy to ensure certain property is inherited by the person(s) of your choosing. For example, you can add a joint name to your bank account, so that the surviving account holder automatically inherits the account balance on your death, instead of it being distributed according to the rules of intestacy.

What is Tenancy in Common?

When a property is owned as tenants-in-common, each owner owns a separate share of the property. Ownership of shares in the property can be equal or unequal but must add up to 100%.

Each of the tenants in common can deal with their share as they wish, including selling or gifting their interest in the property. A tenant-in-common can also leave their interest in the property to whomever they choose in their Will. This is because the share in the property owned as tenants in common becomes part of the deceased’s estate on their death.

In other words, tenants-in-common do not enjoy the right of survivorship. That means that on the death of one of the owners, the transfer of ownership of their interest to the beneficiaries named in their Will is subject to the probate process and probate fees.

Examples of Tenancy in Common

Imagine Person A contributes 75% of the price to purchase a house, and Person B contributes 25%. They may choose to hold title to the property as tenants-in-common, with title to the property stating that Person A owns 75% and Person B owns 25%.

Here is another example we are seeing more of, given the existing real estate market. It’s becoming more common for multiple families or married couples to join together to buy a house. Pooling money allows them to get into the real estate market. Having the appropriate deeds state that they are tenants-in-common protects their individual shares in the house and prevents each owners’ interest in the property from automatically going to the other co-owners if one dies.

Ownership as tenants-in-common is often preferred in other types of arrangements (e.g., a shared cottage or vacation property; an investment property; among business partners). It is also sometimes the recommended option for blended families to ensure that children from a first marriage inherit instead of the second spouse or stepchildren. See below for more on that issue.

Severance of Joint Tenancy

Can joint tenants become tenants in common? Absolutely. It is possible to sever a joint tenancy, thereby eliminating the right of survivorship. If you already own property in joint names but that does not fit within your overall estate plan, you can sever the joint tenancy.

In British Columbia, a joint tenancy can be severed in a few different ways:

• Unilateral action: One of the joint tenants can sever the joint tenancy without the consent of the other(s). This is often done by one owner conveying their interest in the property to themselves using a Form A Transfer under BC’s Land Title Act. Filing the Transfer disrupts the unity of title and converts the joint tenancy into a tenancy in common.
• Mutual agreement: All joint tenants can agree to sever the joint tenancy. This agreement can be informal, but it’s generally a good idea to have it in writing to avoid any potential disputes in the future.
• Sale of the property: If the property is sold, the joint tenancy is automatically severed.
• Court order: A court can order the severance of a joint tenancy. This is typically done in cases where the joint tenants can’t agree on the severance or the management of the property.

Most Common Concerns and Solutions

Blended Families

Joint tenancy is often the preferred choice for spouses, especially for major assets such as bank accounts, investments, and real property. The right of survivorship ensures that when the first spouse dies, assets held in joint tenancy pass to the surviving spouse without delay and without probate fees.

That being said, this may not be the best choice for a blended family. The surviving spouse who receives the asset or property can do what they choose with it. They may re-marry and leave it to that new spouse, sell it, spend it, or leave everything to their children from a previous relationship—all of which serve to exclude the children of the spouse who died first.

There are ways to avoid that problem. For example:

• You can hold title to your home jointly with your new spouse so they receive it after you die, while at the same time providing other property/assets for your children in your Will, or by naming them as beneficiaries of your life insurance, etc.
• You can hold title as sole registered owner so you own the entire property. When you die, property owned by one owner (you) falls into your estate and is distributed in accordance with the terms of your Will.
• You can hold property as “tenants in common” with your new spouse so that each of you owns only your specified share of the property. When you die, your share of property owned as tenants-in-common does not pass to your spouse by right of survivorship. Instead, your share of the property forms part of your estate and is distributed in accordance with the terms of your Will.
• You can add your child(ren) as joint tenants to property so that they receive the entire property by operation of the right of survivorship on your death.

Gratuitous Property Transfers or “Gifts”

Adding one’s children to the title of property can be an effective estate planning tool. But joint tenancy as an estate planning device can also create unexpected problems. For example, if you add your adult child as a joint tenant to a piece of property, it can attract land transfer tax (unless the property is the principal residence of you or your child). It also opens the property up to claims by creditors of your child.

After your death, your estate beneficiaries may be surprised to learn that certain property or assets were given away during your lifetime, thus do not form part of your estate. These types of gifts can be contested by disappointed beneficiaries. Your estate beneficiaries can argue that only legal title was transferred, not the actual beneficial interest in the property or asset.

When a property is transferred gratuitously from a parent to an adult child during the parent’s lifetime, the presumption of resulting trust arises. If the gift is challenged, the child who was added to title to the property or bank account must prove that the parent intended to gift both legal and beneficial title to the property or asset to them. Otherwise, the property or asset will be treated as part of the parent’s estate and distributed in accordance with the parent’s Will.

To avoid estate disputes, it is highly recommended that the parent’s intention be put into writing using a gift deed. If the actual intention is for the property to be held in trust, the appropriate trust agreements should be prepared to document that intention.

Bottom line on joint tenants vs tenants in common

The way you own property can impact several areas including estate planning, property, trust, and family law.

It is not always a simple decision to know which form of ownership is right for you. We welcome you to contact us to discuss how joint tenancy arrangements, tenancies in common, and other options such as trust agreements can be used to benefit you and your loved ones.