Clients often speak about holding assets “jointly” with a spouse or of wanting to leave their cottage “jointly” to their children. When you ask whether they are referring to “joint tenancy with rights of survivorship” or “tenancy-in-common”, typical responses include “I’m not sure” or “does it matter?”.
It does indeed matter. It matters both during the lifetimes of the joint owners and on their death.
Joint tenancy with rights of survivorship (JTWRS) is the more common type of joint ownership. We typically see this type of ownership between spouses and sometimes between parent and child. (The latter arrangement can be fraught with complications, many of which have been discussed in previous blogs on this site. JTWRS is not applicable in Quebec).
When assets are held in JTWRS each joint tenant owns an undivided interest in the property. This means each joint tenant has an interest in, and may deal with, the entire property. In contrast, a tenant-in-common owns a specified interest only (1/3 or 1/2, for example) in the property.
The differences continue when a joint owner dies. In the case of a JTWRS, when one owner dies, the surviving owner acquires the entire property by right of survivorship. In the case of a tenancy-in-common, when one owner dies, their share does not go to the surviving owner or owners; instead, their share will be distributed according to the terms of their Will or on intestacy, should they die without a valid Will.
So when might ownership as tenants-in-common make sense? This arrangement is frequently seem between or among siblings. For example, where parents wish to pass the cottage to their children in the hopes they will in turn pass the cottage on to their children, they may choose to bequeath the cottage to their children as tenants-in-common. When a child dies, instead of having their share now belong to their co-owning sibling(s), their share will be bequeathed according to the terms of their Will. Although there are no guarantees (the children may choose to force a sale of the property during their lifetime or to leave their share to their spouse), this is a common method of passing a property down through the generations. (A more formal trust arrangement is another, more secure, option).
If you’re a joint owner and/or are thinking of leaving property “jointly” make sure you understand the differences between the two basic types of “joint ownership”. The differences can have a major impact on your planning.