Joint Tenancy as an Estate Planning Tool – Pros and Cons

Estate planning means different things to different people, but most people agree that some of the goals of estate planning include:

• Simplifying the administration of an estate

• Minimizing probate fees

• Ensuring that property passes to the intended person

One of the most common strategies used to achieve these goals is to own property with another person in a joint tenancy.

Joint tenancy or tenancy in common Property owned by more than one person must be owned in one of two ways: joint tenancy or tenancy in common. In practical terms, the chief distinction between joint tenancy and tenancy in common is the right of survivorship. Only joint tenants can enjoy right of survivorship.

If you own property with another person as tenants in common, on your death your interest in the property becomes part of your estate to be passed on according to your will. If you own property with another person as joint tenants, on your death your interest in the property normally passes to remaining joint tenant(s) by right of survivorship, and does not form part of your estate.

In British Columbia, the law presumes that an asset (other than land) held in two or more names is owned as a joint tenancy, unless there is an indication that the owners own it in shares. So, for example, household goods, vehicles, bank accounts and investments owned by two or more persons will be presumed to be owned by them as joint tenants, unless their respective shares of the assets are specified or there is a statement that the asset is held by the owners as tenants in common.

However, in the case of land the common law presumption of joint tenancy has been altered by statute, so that land owned by two or more persons is presumed to be owned by them as tenants in common unless the title expressly states that they are joint tenants.

Right of Survivorship Because of the right of survivorship, a joint tenancy can meet the estate planning goals of simplifying the administration of an estate, minimizing probate fees and ensuring that property passes to the intended person. It is a strategy used by the majority of married couples, who own their major assets, such as their home, as joint tenants. The right of survivorship ensures that when the first spouse dies, these assets pass to the surviving spouse without being subject to the delays and expense of an application for probate (with a little extra planning, it is often possible to avoid probate altogether on the death of the first spouse). The right of survivorship also ensures that ownership of the assets will not be affected by claims under the Wills Variation Act, if there is a will, or by the rules for intestate distribution under the Estate Administration Act, if there is no will.

Beware of the Consequences While joint tenancy is most common between spouses, it is becoming increasingly common between parents and children. The purpose is the same – to simplify administration of the parents’ estates and to minimize probate fees. Often the joint tenancy is created after the death of one of the parents. However, this can result in some unintended and undesirable consequences. Consider the example of a parent who has transferred her assets into a joint tenancy with one of her adult children:

Loss of control The parent cannot later cancel the transfer if she changes her mind. As well, in the case of land, she will not be able to sell or mortgage the land unless the child also signs.

Income tax The transfer is a disposition for income tax purposes. The 50% interest in the property transferred to the child is deemed to have been sold at its fair market value and, unless the asset is the parent’s principal residence, a portion of any capital gains will be added to the parent’s income. This could result in the parent having to pay tax even though she received no payment from the child. In addition, one half of any future capital gains will accrue to the child. If the property is the parent’s principal residence and the child lives elsewhere, the principal residence exemption will be lost for the child’s share of any future increase in value of the home.

Property transfer tax In the case of land, property transfer tax will be payable at the time of transfer, although there may be an exemption available if the property is the principal residence of either the parent or the child.

Exposure to creditors The child’s interest in the property will be subject to claims by the child’s creditors. If the child is married and the property is used for a family purpose, it could be subject to claims by the child’s spouse if there is a breakdown of the child’s marriage.

Death of The child may pass away before the parent, negating the purpose of the joint tenancy. If other children were also on title with the parent as joint tenants, on the death of the parent the asset would pass only to the surviving children, and the family of the deceased child would receive nothing.

Blended Families Another unintended result can occur if spouses in a second marriage own property together as joint tenants, and each have children from previous relationships. On the death of the first spouse, the property will pass by right of survivorship to the surviving spouse. The spouses may have had wills that provided that the property would ultimately pass to the children of both spouses, on the death of the last of them. However, the surviving spouse can change his or her will so that the property goes only to that spouse’s children, and the children of the deceased spouse would receive nothing.

Resulting trust The law presumes that a joint tenant who contributed nothing toward the property holds his or her interest in trust for the contributing owner. An exception is the presumption of advancement (meaning a gift in advance of a person’s death). According to case law, the presumption of advancement applies to transfers of property from one spouse to both spouses, or from a parent to a minor child.

However, in 2007 the Supreme Court of Canada stated (in the Pecore and Madsen decisions) that the presumption of advancement does not apply to transfers between parents and adult children. An adult child who receives an asset by right of survivorship from a deceased parent can no longer rely on the presumption that the deceased wanted the child to take the asset at death. Additional evidence is required to prove that the transfer into joint tenancy was intended to be a gift and that the surviving child was intended to receive the asset on the death of the parent.

The Pecore and Madsen decisions also raised the possibility that the right of survivorship itself could be gifted from one person to another. This presents several unanswered questions, however, such as the tax implications of such a gift. As well, it is not clear whether the gift of the right of survivorship applies to real estate.

Put it in Writing To avoid the possibility of a dispute with other family members, and to clarify the tax consequences, it is now imperative to put the parent’s intention into writing. If the transfer to joint tenancy would not result in capital gains tax, or the parent is prepared to pay the tax, the parent could sign a deed of gift to confirm that beneficial ownership in the property is transferred to the parent and child as joint tenants with right of survivorship. On the parent’s death, it would be difficult for other beneficiaries to argue that the child holds the property in trust for the parent’s estate. Alternatively, the parent could require the child to sign a declaration of trust confirming that the child does not have beneficial ownership in the property, but simply holds his or her interest in trust for the parent. In addition to reducing the possibility of a dispute between the child and the other beneficiaries of the parent’s estate, the declaration provides the parent with a greater amount of control over the property, and may prevent the deemed disposition of the property for income tax purposes (because beneficial ownership of the property remains with the parent). However, Canada Revenue Agency (“CRA”) has suggested that the existence of a declaration of trust will not, in and by itself, be conclusive evidence that beneficial ownership of the property has not changed. It would depend on all of the circumstances. CRA’s position is that if legal title to an asset is transferred from a parent to the parent and a child, but beneficial ownership remains with the parent (as confirmed by the declaration of trust and other circumstances), a disposition for income tax purposes has not occurred. Having said that, CRA pointed out that in such a situation a true joint tenancy with the child would not exist and, in its opinion, the goal of reducing probate fees would not be achieved because the property would not pass to the child by right of survivorship. Joint tenancy can be an effective part of an estate plan, but must be used with caution. If you have questions about creating a joint tenancy or other estate planning strategies, call us first for professional advice.

For a discussion of other strategies to avoid probate and probate fees, contact Beacon Law.

Property Transfer Tax – First Time Home Buyer’s Program

British Columbia has a tax on the transfer of real property, called Property Transfer Tax. The tax is based on the fair market value of the real property. The rate of tax is 1% of the first $200,000, and 2% on the balance over $200,000.

However, first-time home buyers who qualify for the First Time Home Buyers’ Program are exempt from payment of the Property Transfer Tax. Typically, to qualify for the exemption, ALL the following conditions must be met:

The Buyer:

• You must have lived in BC for 1 full year prior to the purchase date, or have filed 2 income tax returns as a BC resident within the last 6 taxation years.

• You must be a Canadian Citizen or Permanent Resident. (If you obtain this status within one year after the purchase date, you can apply for a refund).

• You must have never owned a registered interest in real property anywhere in the world that was your principal residence.

• You must occupy the real property as your principal residence within 92 days of the purchase date.

• You must continue to reside in the real property for 1 full year after the purchase date. (If you move out sooner, you may have to pay some of the tax).

• You must have never received a first time home buyers’ exemption or refund.

The Property:

• It must have a fair market value of no more than $500,000. If it is vacant land, the value of the land plus total construction costs must be less than $500,000).

• It must be classified as residential.

• It must not exceed 0.5 hectares (1.24 acres) in size.

If the buyer fully qualifies but property does not fully meet all of these conditions, a partial exemption from the tax may still be available.

If you have questions about the First Time Home Buyers’ Program, or about buying or selling real property in BC generally, please contact us.

Power of Attorney ABCs

This article is a general introduction to the “enduring” Power of Attorney, often simply called a “POA”. It is perhaps the most common and useful estate planning document, and one of the more dangerous, if not made and used correctly.

With a POA, you can choose a person (“attorney”) to act on your behalf. This can be very useful during a future loss of mental or physical capacity due to illness or accident, or for a person working or travelling abroad.

Even a simple POA will usually avoid both the need for a court-appointed adult guardian, which is uncertain, time-consuming and costs thousands of dollars to arrange, and the problems that can result from creating joint accounts just to manage funds.

Only an adult with legal capacity can make a POA. The British Columbia Power of Attorney Act requires that you must be able to understand all of the following:

• what assets you have, and their approximate values;

• your obligations to your dependants;

• the scope of what the attorney will be able to do on your behalf;

• that, if the attorney does not act prudently, your estate may lose value;

• that the attorney might misuse the authority, causing you harm; and

• that as long as you have capacity, you may remove the attorney.

A POA can grant very broad powers, such as managing, selling, investing, or spending any income or asset. However, it can also have limits and protections:

• requiring a doctor opinion to confirm your incapacity first;

• limiting the attorney’s authority, in time or in scope;

• naming an alternate attorney, in case the first is unable to act; and

• naming more than one attorney, who must act together.

Under the British Columbia Power of Attorney Act, every attorney has a list of basic duties, such as keeping records of all decisions and actions and producing them (a process called “accounting”) on demand. The attorney can face removal as well as legal liability if those rules are not followed.

Although POAs do not automatically expire, many older POAs are missing terms and guidance that you may consider to be important or desirable, such as to allow the attorney to support family members, to continue a pattern of charitable giving, or to compensate the attorney for their time spent on your affairs.

There is no mandatory form of POA, so your POA can be customized according to your wishes and circumstances. This requires a thorough discussion to make sure that you understand the risks and options before deciding what to do.

If you have any questions about a Power of Attorney or another type of estate planning, please contact us for accurate, respectful, and practical advice.

My spouse died and left everything to me. What should I do next?

Losing a spouse is a traumatic experience that naturally produces strong feelings. What is worse, added to the loss and grief is the sudden recognition that “the estate” must be dealt with.

After caring for your spouse’s remains you will receive an official death certificate from the funeral director who assisted you. This is an important document for administering the estate and it is advisable to get at least two of these certificates.

If all of your spouse’s assets and liabilities are held jointly with you, your tasks to administer the estate may be relatively straight-forward and not take too long to handle. For example, using the death certificate, you can quickly remove your spouse’s name from joint bank and investment accounts.

Other common points to consider include:

• Inquire if you qualify for a survivor pension or death benefit from your spouse’s employment or pension plan.

• Discuss your spouse’s final income tax returns with an accountant.

• If there is jointly-held real estate, update the land title (you may enlist the help of a lawyer with this).

• Review your own estate plan, including will, power of attorney, and representation agreement.

This article assumes the deceased was primarily resident in British Columbia. It is not a substitute for accounting and legal advice.

Beacon Law Centre offers surviving spouses a no-obligation initial consultation. This provides an opportunity to discuss your situation in a safe and confidential setting, to gain reassurance about the next steps needed, and to receive a quotation if further legal help is needed.

The Common Law Right to Protect Waterfront Land from Erosion

Del Elgersma summarizes the recent BC Supreme Court decision in the case of Fonseca vs Gabriola Island Local Trust Committee, which affirms the “ancient common law right” of waterfront owners to protect their land from erosion.

BACKGROUND

• The Fonseca’s are an elderly Burnaby couple (in their ‘80’s), married over 60 years, who have owned waterfront property on Mudge Island, near Gabriola, since 1991.

• In 2003 they received a provincial license and built a concrete boat ramp.

• Over the next few years they built various structures on their property along the shoreline, including a deck and two seawalls, without the approval of the local government, the Gabriola Island Local Trust Committee.

• The Gabriola Island Local Trust Committee has the status and powers of a local government under the Local Government Act.

• A bylaw prohibited any structure within 30 meters of the sea. There was an exception where the frontage on the sea was adequately protected from erosion by natural bedrock – in that case, the setback was reduced to 7.5 meters, but that did not help the Fonseca’s: they didn’t have bedrock, and their structures were right along the shoreline.

• In 2012 they had a dispute with a neighbour, who complained about the structures, which resulted in enforcement action by the local government and ultimately this case.

DECISION

• The judge ordered the removal of a deck and certain fences which were built within the setback area and which were not for the purpose of preventing erosion.

• However, the judge agreed that there is a common law riparian right for a waterfront landowner to protect their property from erosion by the sea.

(Technically, riparian rights are rights related to streams and rivers, while littoral rights are rights related to the sea or lake-shore. However, it is common for both types of rights to be referred to as riparian rights.)

The judge stated, “this riparian right is grounded in Roman and, subsequently, English law that allowed landowners to protect their property”. He referred to two old English cases, coincidentally both from 1828, which outlined this right, and included this quote from one of those cases:

“It seems to me that every landowner exposed to the inroads of the sea has a right to protect himself, and is justified in making and erecting such works as are necessary for that purpose”

Justice Masuhara then stated “I find that there exists a common law right to protect your property from erosion caused by the “inroads of the sea”.

The remaining issue was whether this common law right had been extinguished. Under rules of statutory interpretation, common law rights continue unless modified, altered or abrogated by statute. The abrogation must be express or necessarily implied; the judge found neither. While the Local Government Act gives local governments wide powers to regulate land use and structures, there is no specific abrogation of the right to protect land from erosion. The judge therefore concluded that the setback bylaw infringed the Fonseca’s common law rights and was inapplicable to the seawalls.

Unfortunately, within two weeks of the decision the local trust committee announced it would appeal the decision. In a press release they stated:

“We are disappointed with the Court’s narrow interpretation of the law and decision that B.C. local governments cannot enact zoning regulations to prohibit seawalls”.

The trust committee’s argument that the common law has been abrogated seems destined to fail. The BC Government itself has acknowledged that the right still exists!

The Ministry of Environment published a paper on riparian rights in 1990 (updated in 2008). The paper, titled “Riparian Rights and Public Foreshore Use in the Administration of Aquatic Crown Land”, has much to say about the common law right recognized in the Fonseca case.

Here are some excerpts from the paper:

“British Columbia recognizes the right of upland property owners to protect their land from erosion or flooding by building embankments, dykes, or other protective improvements. This right may be exercised only on the upland property. Owners have the right to install protective structures on their own land; but they require the consent of the Crown to extend any structures below the natural boundary.

“As defined in section 1 of the Land Act, natural boundary means the visible high water mark of any body of water…

“Accretion and Erosion
Land abutting a body of water is subject to accretion and erosion.
A waterfront property owner owns land that has slowly and naturally accreted once that land takes on upland characteristics.
This situation can also operate in reverse. When the upland is slowly and naturally eroded, the land lost becomes part of the foreshore or bed of the adjacent water body. The Crown then owns the land below the natural boundary.

“Summary
Of the historical or traditional riparian rights and related property rights mentioned here, three have been abrogated by statute;

• The principle of ad medium filum aquae (the concept that your boundary extends to the middle of any adjacent stream or river).

• The right to water flow of undiminished quality and quantity.

• The right to construct facilities on the foreshore to provide for access to deep water.

“Three riparian rights that do apply in British Columbia are:

• Protection from erosion by an owner.

• Accretion and Erosion – ownership of naturally accreted material which has taken on upland characteristics.

• Ingress and Egress – access to and from navigable waters.

“The right to protect waterfront property from erosion is relatively well established. The limits of that right are defined by the boundaries of the upland property being the location of the present natural boundary as it exists from moment to moment. To erect protective works beyond the present natural boundary needs the consent of the Crown.

Given these statements, it is hard to imagine that the Court of Appeal could decide that the common law right to protect your land from erosion has been abrogated.

This right is very important in BC, because land lost to erosion cannot be reclaimed, it becomes Crown foreshore land.

TAKEAWAYS

• In the Fonseca case, the judge found that there had been actual erosion – if there was no evidence of erosion (or at least no real threat of it), the result may have been different.

• If the local trust committee wins on appeal, the decision applies retroactively, so any structures built while the appeal is pending would be non-compliant.

• The judge confirmed that local governments can regulate how seawalls or other anti-erosion measures are constructed – if the local trust committee loses the appeal, expect to see municipalities update their bylaws to regulate this.

• If the trial judge’s decision is upheld, the best time to build protective structures might be immediately after the appeal, before the municipality brings in onerous bylaws (or before the province enacts legislation to abrogate the right).

• However,

  • be careful that structures don’t result in erosion to your neighbour’s property, and

  • be prepared to prove that there was actual erosion, or at least a real threat of erosion.

Beacon Law Centre Funds Special Project for Community in the Congo

Beacon Law Centre’s staff have sponsored a child in the small village in the Democratic Republic of the Congo through World Vision Canada for the past 13 years. The team is always delighted to receive photos and correspondence from our sponsor, Emely, and are proud to be able to make a difference in her future. This past year, we found out that one of the challenges for Emely’s family is their access to clean water. Our immediate reaction to hearing this news was, what can we do to help! After corresponding and planning with World Vision Canada, we are thrilled to announce that Beacon Law Centre has funded a special project to supply Emely’s family and community with a reliable water source. Over the next few months we will be receiving progress reports on the project from World Vision Canada.

Community Involvement – Giving Back

At Beacon Law Centre we believe in giving back to our community and are proud to have contributed to the following causes and programs in 2018:

Saanich Peninsula Community Foundation

The Saanich Peninsula Community Foundation is committed to improving the quality of life on the Saanich Peninsula by promoting and increasing responsible, effective and accessible philanthropy. The Foundation uses entrusted funds to serve the interests of all Saanich Peninsula residents in education, welfare, culture, environment, health and recreation.

www.sp-cf.ca

Saanich Peninsula Hospital & Healthcare Foundation

The Saanich Peninsula Hospital & Healthcare Foundation is a registered charity that raises funds in support of the Saanich Peninsula Hospital. The Saanich Peninsula Hospital provides local access to a variety of health care services, ranging from emergency service to general surgery and a long-term care unit.

www.sphf.ca

ORCCA Dental Clinic

ORCCA Dental Clinic’s purpose is to provide children and adolescents under 19 years of age from low-income families access to oral care in a not for profit setting. It is based on the beliefs that all children and adolescents have the right to healthy oral care and that effective oral care positively transforms the health and lives of children and adolescents.

www.orccadental.org

Rotary Club of Sidney by the Sea – Monte Carlo Night

The Rotary Club of Sidney by the Sea has been in Sidney since 1994 and supports local causes as well as international projects. Through social events and activities they offer networking opportunities to help build personal and professional connections. The “Monte Carlo Gala” is the club’s premier fund raiser of the year, and enables Rotarians to support many charitable projects. For the 2018 Gala, proceeds supported the Peninsula Youth Health Clinic, Mt. Newton Centre Society, and Sidney Elementary School.

www.sidneyrotary.com

BMO Lanes & Lyrics Sponsorship – BC Children’s Hospital

BMO bankers from across the BC raise funds for BC Children’s Hospital Foundation and Kids Help Phone at the annual Lanes & Lyrics. Teams compete to raise the most funds by performing on stage and lacing up their bowling shoes.

www.bmolanesandlyrics.com 

Brentwood Bay Community Association

The Brentwood Bay Community Association is a non-profit society formed by a group of residents and volunteers. The purpose of this Society is to strengthen the community of Brentwood Bay by providing arts and cultural events for all ages. Some of the Society’s events include; Music in the Park, The Brentwood Bay Community Festival, Christmas Light Up in Brentwood Bay, Barney Bentall’s Cariboo Express and The Empourium Sessions.

www.brentwoodbay.info

Balfour’s Friends

The Balfour’s Friends Foundation aims to assist people in need by receiving and maintaining funds in order to provide supplementary aid to pet owners in need to ensure proper veterinary care can be supplied to their pet. The Foundation is non-profit and relies on donations to support pet owners.

www.balfoursfriendsfoundation.webs.com

World Vision Canada

For over 12 years, the team at Beacon Law Centre have had the option to wear jeans to work on Friday’s for a small donation. These funds go directly to a World Vision sponsor child in a developing county. At the end of the year with the leftover funds, the team gets to decide on a special gift for our sponsor’s community.

www.worldvision.ca

Firm Management Charity Golf Tournament

Each September, Firm Management hosts the Firm Management Corporation Charity Golf Tournament at the Cedar Hill Golf Course. Proceeds from the event are donated to the Saanich Peninsula Hospital Foundation and Victoria Hospice Foundation. The event provides a perfect opportunity to give back to the community while enjoying one of Victoria’s most beautiful courses, capped off with dinner among friends.

www.firmmanagement.com/about-us/community-support

Angel Flight of BC

Angel Flight of BC provides free air transportation to cancer patients requiring travel to treatment at cancer clinics and hospitals in Vancouver, Victoria and other cancer centres within the approved Angel Flight areas of operation. They are an entirely volunteer-led organization with no paid employees.

www.angelflight.ca

Island Swimming

Island Swimming provides a swimming community in Greater Victoria where success is measured beyond podium results. Island Swimming operates programs for swimmers of all ages in Victoria, Saanich and Colwood. They believe in the potential of all athletes and promote swimming as a long-term development and life long skill.

www.islandswimming.com

Sidney Piranhas Swim Club

The Piranhas Swim Club is a competitive swim club on the Saanich Peninsula that promotes the sport of swimming in a safe and enjoyable environment. The goal of the club is to provide every member an opportunity to improve swimming skills and achieve success at his or her level of ability, from beginner and intermediate to Provincial champions.

www.sidneypiranhas.com

Cat’s Cradle Animal Rescue

Cat’s Cradle Animal Rescue was founded in 2006 because of the acute need for rescue services for animals with special needs, such as serious medical conditions. They rescue, rehabilitate, spay/neuter, and re-home distressed, abandoned, or neglected cats and dogs considered unadoptable because of health, age, appearance, or temperament.

www.catscradleanimalrescue.com

Wounded Warriors Canada

Wounded Warriors Canada honours and supports Canada’s ill and injured Canadian Armed Forces members, Veterans, First Responders and their families. With support of caring Canadians and Canadian businesses from across the country, they are able to deliver a national slate of mental health programs and services that are adaptive, innovative and evidence-informed.

www.woundedwarriors.ca

Do You Need a Second Will?

Thanks to a recent change in BC’s estate laws, business owners can now reduce the amount of probate fees payable by their estate by utilizing a second will. Probate usually becomes necessary because third parties, such as financial institutions, or the Land Title Office, want assurance that the executor has the authority to deal with a particular asset. Probate fees are payable to the government based on the value of the estate assets.

The articles of most private companies allow for the transfer of a deceased shareholder’s shares to the estate without probate. However, if probate is required because other assets were owned solely by the deceased (such as a vehicle, bank account or real estate), the company shares must be listed in the probate application and will be subject to probate fees. If the company shares are dealt with in a separate will, probate fees for the shares are avoided.

To benefit from a second will, you must appoint a different executor under each will. If you think you would benefit from dual wills, we can help.

Check out our article this month in Boulevard Magazine’s “The Influencers” feature