Buying a Home? Your Title Matters…

Joint Tenancy vs Tenancy in Common

When you register your home, you have an important choice to make! Many people are unaware of the choice, or wonder what the difference is…or if this difference is even important.

The type of your title registration is QUITE important – and I’d like to share with you the difference between the 2 forms of title, Joint Tenancy and Tenancy in Common, and a few points you would want to consider when you choose for your property’s title.

Joint Tenancy

The words Joint Tenancy probably make you think about the people you are living with in your home, but in fact when referring to land title, this is in reference to a type of ownership.

In a joint tenancy, each person or co-owner (and there can be more than 2) owns the whole property, or in legal speak, an undivided interest in the whole of the property. As between themselves, joint tenants have separate rights, as against everyone else they are in the position of a single owner.

Tenancy in Common

If two or more people own a property and register their ownership as Tenancy in Common, the amount that each person owns does not have to be divided equally. Tenants in Common can own different proportions of the property, for example ¼ and ¾. Additionally, a tenant in common can sell or mortgage their portion or share of the as they see fit without consulting the other property owners.

Considerations When Choosing Joint Tenancy or Tenancy in Common

Upon the Death of an Owner – For Tax Purposes

RIGHT OF SURVIVORSHIP – One of the principal features of a joint tenancy is the right of survivorship.  Right of survivorship is when the surviving owner(s) automatically absorbs a dying owner’s share of the property. If there are more than two owners, this continues until the last person is the sole owner.

Right of survivorship is important because upon death, all of the deceased’s assets become part of that person’s estate and will be subject to probate fees and will be taxable. A joint tenant’s property will bypass probate fees and go straight to the other owner(s).

*A noted aspect of right of survivorship is that you cannot leave your interest as an owner in joint tenancy to anyone else in a Will. This does not imply that you cannot dispose of your interest during your lifetime, but if not dealt with while you’re alive, the right of survivorship takes precedence regardless of any wishes you may have added to your Will.

On the other hand, if you are registered as a tenant in common and one tenant in common dies, that person’s share of the property becomes a part of the deceased’s estate. It is subject to probate fees and it will be first taxed and then distributed to the beneficiaries of the deceased person’s estate.

Property Transfer Tax Exemption

Normally, property transfer tax is exempt for first time homebuyers who purchase properties valued under $475,000. In many cases, first time homebuyers need an extra bit of help qualifying for their mortgage and either one or two the parents would guarantee the loan. However, many lenders are now requiring borrowers to have cosigners on the mortgage, rather than guarantors.

A cosigner is required to be on title whereas a guarantor is not.

The problem this creates is that if a parent already owns their own property, or the parent does not live in the newly acquired property as their primary residence, no property transfer tax exemption will be given.

Registering a property as Tenants in Common, with the borrower registered as a 99% owner and parent registered as 1% owner negates this problem. In this case, the borrower would be exempt, but only on their 99% ownership. The cosigner would not be exempt but they would only have to pay 1% of the property transfer tax.

Considerations When Choosing Joint Tenancy or Tenancy in Common

If you are thinking of holding a property in joint tenancy with an Adult Child for estate planning purposes, you should consult a lawyer. There can be many unintended consequences and pitfalls for such an arrangement. For example:

  • loss of control: you cannot sell or mortgage without the consent of the child.
  • taxes: there may be capitals gains consequences for the parent or the child.
  • property transfer tax: depending on whether the property is a principal residence, you may have to pay property transfer tax.
  • creditors: the property will be at risk to claims by the child’s creditors.

eitan pinsky - tenants in common

When considering tenancy in common, there are other factors to think about:

  • property is not easy to ‘distribute’ when added to a Will or estate. If you have multiple beneficiaries who each want to deal differently with their portion of the property left to them, this could create unintended strife.
  • the property will likely be subject to probate fees.
  • capital gains taxes will likely be applied to each beneficiary’s portion of profit of the sale if the beneficiaries choose to sell the property.

The Final (or not so final) Word…

The considerations or pros & cons of which type of property title to choose are important ones for not just the long term planning of your estate but for current tax planning as well. Please consult a lawyer, accountant or certified financial planner if there are questions that arise when making decisions about your title.  These professionals will be able to decipher any nuances or issues involved with specific situations that are not immediately apparent and help you make the most informed decision when it comes to your property title.

This article should not be solely relied upon for advice.