Appendix:
NOTE: The discussion in this section on joint tenancy does not apply to Quebec, because the concepts of survivorship and joint ownership do not exist under the Quebec Civil Code. See Question 21 in this section for a discussion of Quebec rules.
Joint ownership is generally used to refer to the situation where one or more owners have undivided interests in property and rights of survivorship. Joint owners are deemed to own equal undivided interests in the jointly held property. So, if there are two joint owners, they each have an undivided half interest in the property. If there are three joint owners, they each have a third undivided interest, and so on. Joint owners are sometimes called "joint tenants".
If you own an asset with another person under joint tenancy and one of you dies, the survivor automatically and irrevocably owns 100% of the asset. Generally, assets held under joint tenancy do not form part of the estate of the deceased so do not have to wait to be distributed according to the terms of a probated will. "Joint tenancy" provides rights of survivorship. Joint owners are deemed to own equal undivided interests in the property.
"Tenants in common" each own a distinct and separate share of property, with no rights of survivorship to the other's share. If you own an asset with another person as tenants in common and one of you dies, the survivor does not become the owner of the deceased owner's interest in the asset. The survivor continues to own only the portion that was owned immediately prior to the death. The portion of the asset owned by the deceased forms part of the deceased's estate and will be dealt with according to the terms of the deceased's will, once the will has been probated. Tenants in common do not need to own equal interests in the property. For example, one co-tenant could have a 75% interest in the property and the other co-tenant could have a 25% interest.
Because jointly owned assets do not form part of the estate of the deceased, the surviving owner has full control over the total asset because he/she becomes sole owner of the asset by virtue of survivorship on the deceased's death. Jointly owned assets avoid any delays and the probate fees that may otherwise apply when assets are subject to the provincial surrogate/probate court process. (Probate fees vary by province - see Section 7 on Probate).
It may be impractical or undesirable to have assets in joint ownership. Joint ownership can often mean the inability of one party to sell an asset without the other's approval. The disadvantages of joint ownership with rights of survivorship (joint tenants) are:
Yes, but all joint owners must provide Investors Group with a written and signed instruction authorizing Investors Group to accept the instructions of only one account owner. Such an instruction is in reality a power of attorney limited to the specific account in question.
Even if the representative has obtained Single Signature processing instructions from all joint owners, verbal instructions must be obtained from every joint owner in regard to each transaction, unless we have written authorization to accept instructions from only one owner.
It should be noted that a written authorization to accept instructions from one joint owner can, in most circumstances, be revoked. It should also be noted that such a power of attorney will not permit one joint owner to make changes to the registration of the account (i.e. delete an owner or add a new owner). For these types of changes Investor's Group will still require instructions from all joint owners.
Generally, jointly owned assets pass automatically to the survivor, without forming part of the deceased's estate. It is the deceased's estate which must be probated, not assets which transfer to a beneficiary outside the will.
Solely owned assets are subject to probate fees because they do form part of the deceased's estate.
Assets held as tenants in common are subject to probate fees because they do form part of the deceased's estate (because the deceased is the owner of a specific divisible share of the asset).
Adult Children:
It is possible to jointly own Investors Mutual fund shares/units with adult children to income split while alive (on part of the asset) and to avoid probate taxes and income taxes (on part of the asset on death). Income splitting with an adult child is easily achieved through joint ownership, as joint ownership involves the "gifting" of essentially half of the asset to the adult child. The transfer of half the asset occurs at fair market value. Where you gift to an adult child, there is no attribution of future simple or "compound" income or capital gains. Joint ownership with an adult child is a relatively effective estate (and tax) planning technique so long as the transfer at fair market value does not pose a problem and loss of control is not negatively viewed by client.
Minor Children:
Generally, one would not recommend owning a mutual fund account jointly with a minor child as there may be difficulty in transacting on the account until the child reaches the age of majority (see the Questions 9 in Section 4 on Investments for Minors). Note that a family trust could be established to own the shares for the minor trust beneficiary. Outright gifts to a family trust (which transfer at fair market value) would be more appropriate, providing control and an easily tracked, income splitting opportunity ("compound" income and capital gains do not attribute) using the One-Plus-One program, plus the ability to avoid probate fees and capital gains/losses on death of the settlor, as the mutual fund shares are owned by the trust when the settlor parent dies.
Spouses:
Jointly held mutual fund shares with a spouse will avoid probate fees. However, income splitting with a spouse is not easily accomplished as the One-Plus-One cannot be used to track attribution of simple income and capital gains. Furthermore, the spousal rollover rules are available (without involving joint ownership), such that an outright gift to the spouse or to an inter vivos spousal trust prior to death will avoid a probate fee upon the death of the transferor.
Note: If the following conditions are met, the spouses could contemplate joint ownership to avoid probate:
No.
Yes.
Yes, it is possible to have two or more people as joint owners. For example, your client, his/her spouse and child could be joint owners. The ownership split always has to be equal, because joint ownership signifies undivided, equal ownership with rights of survivorship.
Only if it makes sense overall (considering not only estate planning, but the fact that you may be giving up control over the asset while you are alive).
Yes. Remember, however that all joint owners will be required to sign in order to transact business on the account and that ownership of assets by minor children can pose some legal problems (neither joint owner has access to the asset until the minor reaches the age of majority). A family inter vivos trust should be contemplated to hold property for a minor. See Section 4 on Loans, Gifts and Inheritances - Related persons. Also, note the tax consequences with joint ownership of assets (see Question 20).
It depends. Due to the principal residence exemption election, the capital gain on the home is not taxed upon death. It is possible also to avoid the probate fees upon death by having the home held jointly. Realize, however, that in order to sell a jointly-owned home, both parties must agree to the sale. So do not consider only the fact that probate fees can be avoided upon the first death, as other considerations may apply.
Yes, unless the new joint owner is your spouse. Adding a joint owner is a disposition of part of your interest in the account for income tax purposes. If there are accrued capital gains associated with the account, you will have realized a capital gain on the transaction. An exception exists if the new joint owner is your spouse, because capital assets can be transferred between spouses at adjusted cost base. See the Tax Facts article entitled "Tax News Regarding Joint Ownership" from the October 21, 1994 Sales Bulletin, which is attached as Appendix A to this section, for a detailed explanation.
Perhaps, depending on the asset. For example, if you are changing title to a piece of land, that can involve not only legal fees, but also land transfer taxes in some provinces.
Yes, but only the portion owned by the settlor of the trust.
The portion of an asset held by the deceased as "Tenants in common" will form part of the deceased's estate and can pass to a testamentary trust. If the asset in question is held under joint tenancy with right of survivorship, it cannot pass to a testamentary trust (because the deceased joint owner's interest will pass to the
No. See Question 8.
Remember that joint owners are deemed to hold an equal undivided interest in the account. After adding a joint owner, Revenue Canada will expect the new joint owners to report their share of future income and capital gains on the account UNLESS the attribution rules apply (so, if the joint owner is a spouse, all simple income and capital gains on the spouse's share of the account will attribute back to the original owner and, if the joint owner is a minor child or grandchild, all simple income on the minor's share of the account will attribute back to the original owner). This is an advantage if the purpose of adding a joint owner is income splitting, but it may be a disadvantage if the new joint owner is an adult in a higher tax bracket than the original owner! (Some experts feel that it is legally possible for joint owners to establish by written agreement that the new joint owners hold their interests in trust for the original owner, and have merely been added as joint owners for estate planning purposes, owning only the right of survivorship. The purpose of such an agreement would be to attempt to establish to Revenue Canada that only the right of survivorship has been disposed of when adding the joint owners, and that the original owner would still be required to report all income and subsequent capital gains on the account. It is uncertain as to whether such an objective would be accomplished in any particular set of circumstances. If a client is interested in such an arrangement, they would have to seek the services of a tax lawyer, for advice and the preparation of any formal written agreement of this nature. Investors will still issue a Capital Gains Accounting Advice whenever joint owners are added to an existing mutual fund account, unless the new joint owner is the spouse of the original owner. It will be up to the client, on the advice of his tax lawyers, to determine if the gain must be reported, if such a special agreement has been entered into.)
The concepts of ownership differ between the civil law system, which is the legal system in Quebec, and the common law system, which is the legal system in the rest of Canada. In particular, "joint" owners do not have a right of survivorship in the civil law system. The legal system where you reside is generally the one which governs the disposition of your estate when you die. So, if a Quebec resident dies owning a mutual fund, bank account or similar property, the deceased's interest will be dealt with in accordance with his or her will (or the Quebec laws of intestate succession if there is no will), even if the property is expressed to have been "jointly" owned. (Note that real estate may be another matter because the distribution of real estate may be governed by the law of the state where the real estate is located, which could provide a right of survivorship even to Quebec owners of real property, depending on the circumstances. This is a complex area that deals with "conflicts of laws" and is outside the scope of our discussions in this manual, other than to note that Quebec clients with real estate located outside Quebec should consult with their legal advisors if they wish to confirm how the property will be distributed on their death.)