Joint Accounts

Things to consider before placing assets in a joint name.

Control

• Absolute control of the asset may be lost
• In the case of real property, the ability to rent, mortgage or sell the property without the co-owner’s approval may be limited
• The new co-owner may have the ability to sever joint tenancy

Family law issues

• The co-owner’s divorcing spouse/common-law  partner may be able to claim against the transferred value of the asset upon any relationship breakdown

Claims by creditors

• The asset may be seized and sold to satisfy the co-owner’s creditors

Potential misuse of the transferred property

• Ensure you know and trust the co-owner; be aware of any gambling or spend-thrift issues, for example, that place the asset at risk

Effect on your estate plan

• Will your estate have sufficient assets  to honour your wishes?
• Will your estate have sufficient assets to pay its debts following the transfer of the asset?

Tax implications

• Unless the transfer is exempt or a resulting trust, the transfer will trigger a disposition that will need to be reported on your tax return
• Depending on the age of, and relationship to, the co-owner, income tax attribution rules may apply
• If the asset in question is your principal residence  and the co- owner already has a principal residence, any future capital growth of the jointly owned residence may be subject to tax as an individual is entitled to only one principal residence exemption

Things to consider at the time of transfer

What type of joint account do you wish to create?

• Tenants-in-common where owners  hold a separate but undivided interest in the same asset and have an equal right to the possession  and use of the property. Each owner can sell or gift his or her share without the co-owner’s permission
• A joint tenancy (gift) where the asset is jointly held by two or more parties, and upon the death of a co-owner, their respective share passes to the surviving co-owner(s); the share of each passing  to the other or others on death
• Joint tenancy (resulting trust) where an asset is placed in joint names for convenience with the understanding that the original co-owner remains the beneficial owner; the new co-owner is simply a trustee overseeing the asset, and the asset will pass through the original co-owner’s estate upon their death with the property returned to the original owner or his or her estate
• The tax impact varies depending on tenancy option employed – joint or other. See chart Tax effects at a glance.
• Do you fully understand  your rights,  obligations  and the implications of each type of joint ownership and have you properly documented your intentions?

* Provincial laws may affect some of the considerations
* Best practice is to consult tax, accounting and legal advice prior to transferring any asset into a joint name

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