In Ontario, there are two types of co-ownership for property: joint tenancy or tenants-in common. The structure of co-ownership is often overlooked, yet it is also an important factor for the purposes of estate and succession planning.
Joint Tenancy
At common law, joint tenancy is generally presumed over tenancy in common. In joint tenancy, if a co-owner dies, the surviving co-owner(s) have an automatic right of survivorship to the deceased’s share of the property. While there can be several co-owners in a joint tenancy, two is the most common number as joint tenancy is often utilized by legally married spouses to hold ownership of their house together. Joint tenancy means that both co-owners equally own the asset and equally share rights and obligations.
A benefit of joint tenancy is that it eliminates the need for probate. Consequently, a Survivorship Application can be registered on title to transfer the ownership to the surviving registered owner. It also establishes a survivor, and therefore inherently serves as an estate planning strategy. By the same token, if the deceased co-owner intended to pass on their share of the asset to someone other than the surviving co-owner on title, this intention would be overridden by the right of survivorship of the surviving co-owner. Since the asset is owned equally, the surviving owner would also be liable for any debts or payments associated with the deceased’s interest in the property.
Tenancy in Common
If a tenant-in-common dies, the surviving co-owners do not inherit the deceased’s share of the property or asset, rather the deceased’s share will fall to their estate and will be subject to the instructions in their Will, or in the case of no Will, the deceased’s share will be distributed in accordance with the laws of Intestacy. Therefore, the co-owner can leave their share of the property to a separate beneficiary if they have legally executed Estate Planning Documents that contains provisions for this distribution.
In a tenancy in common structure, each co-owner only owns their share of the asset, which is typically represented by percentage figures. For example, ownership can be split 60-40% or 80-20%. However, similar to co-owners in a joint tenancy, all co-owners are responsible for obligations such as debts and taxes. Since the shares are split, co-owners in a tenancy in common have more authority and independence over their individual share. It also allows for the sharing of costs and funding for major real estate purchases while maintaining involvement and ownership at an individual level.
Some disadvantages of tenancy in common include a more vulnerable surviving co-owner, since they might have conflict with the surviving adult children or beneficiary of the deceased co-owner if they wish to sell the property or their plans are at odds with the surviving co-owner’s interests. Additionally, since co-owners are free to sell their shares, co-owners might end up in tenancy in common with a very different group of people than when they first acquired the property. This could lead to conflict and tension if co-owners share possession and do not get along.
A joint tenancy can be terminated and converted into a tenancy in common if co-owners decide it is a better option for them. This often happens when a married couple decides to divorce or separate, as it helps with the separation process since both parties then become individual owners responsible only for their share of the asset. Additionally, if there is no mortgage on the property, a co-owner in a joint tenancy can unilaterally decide to terminate the structure by selling their share. For more information on Severing a Joint Tenancy, please visit our blog post.
Sources:
Ontario, Co-ownership arrangements. https://www.ontario.ca/document/co-owning-home/co-ownershiparrangements#:~:text=Ownership%20as%20a%20group%20of,becomes%20part%20of%20their%20estate.
NOTE: This article has been written for general information purposes only and does NOT constitute legal advice. For further questions and/or legal advice please consult a qualified lawyer.