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Friday, January 6, 2012

How to make an intergenerational joint tenancy work

It's great that people are reading my warnings about using joint tenancy as an estate-planning tool without legal advice. This question from a reader gives me a reason to go a little deeper into the issue of intergenerational joint tenancy.

"I live with my mom in her principal residence. It is paid for and she has no debt. She intends to pass on the house to me after her passing, and her remaining assets divided up equally amongst the other siblings. Having read some of your other articles regarding inter-generational joint tenancy not working as true joint tenancy, what is the best and most definitive way for her to pass on her house to me without having to incur probate cost and deal with unwanted conflicts from other siblings ?"

A parent who wants to leave his or her home to one of the children has a couple of options. There is never one right answer or arrangement that suits everyone.

You are right that if your Mom doesn't add you as a joint tenant on the property, and the property is in her name alone when she passes away, it will be necessary to probate her will in order to transfer the house. Adding you as a joint tenant might or might not keep the house out of probate - more on that in a moment - but even if it did keep the house out, the chances are good that your Mom's will would have to be probated anyway if there are other assets.

If your Mom wants to add you as a joint tenant on her house so that you inherit the house on her death, it can be done. Yes, you are right that intergenerational joint tenancies don't automatically operate as true joint tenancies any more, but there is more to that general rule. If there is evidence provided by the parent at the time the property was made joint, this may well serve to create a joint tenancy that will properly hold up. This is why I always tell people not to put the house in joint names without legal advice, because the lawyer will help the parent document those intentions in the right way.

So, your Mom can add you as a joint tenant on the house and document her intentions. To make that even stronger, your Mom can make a new will close to the time she changes the title on the house and confirm her intentions in the will. As mentioned, this might not avoid probate for the other assets of the estate but it would keep the house out of probate. That would keep probate fees lower.

Conflict from other siblings is an issue that causes untold damage and I think you and your Mom are smart to think about the optics of leaving the house to you. The way I read your question, I concluded that you get the house and your siblings divide the rest, without you getting a share of "the rest". I don't know what the monetary value is, but given your concern over conflict, I assume they'll be getting less than you will in terms of value. Is there a reason why your Mom wants to give you more? Have you been the one who has always helped her, or do you already live in the house? Has your Mom already given financial help to the others? Even a brief statement in the will that explains her actions can have a calming effect. I am talking about a statement that starts off with "I love all of my children equally but I am leaving a bit larger share to Child X because...", followed by one or two lines explaining her reason.

Also, your Mom needs to clarify whether getting the house means also getting the contents of the house along with the title. Personal items cause more fights than money does, so she needs to be VERY clear on whether your siblings can take anything out of the house.

This is not a will that your Mom should be making on her own. She should talk to a lawyer who specializes in wills and estate planning to discuss the wording of the will and the implications of an intergenerational joint tenancy.

12 comments:

  1. Hi Thanks, great advice! Your assumptions are correct. I've lived with my mom since we moved here, and have taken care of her and the house, and helped with paying off the mortgage. A couple of years ago I went on disability and now have limited income, so she feels justified to pass on the house to me so i still have a place to live after her passing. If my share is considered disproportionally more, do we have to be concerned about the Will variation act. Any advice how to mitigate and handle this situation ? Thanks!

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  2. Hi,
    I have another question related to this topic: If an inter-generational joint tenancy is set up as you have described above, will capital gains tax still need to be paid when the first joint tenant dies?

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  3. Hi,

    My father has told my 4 siblings and me that he wants my sister to have his house after he dies, but she will have to pay each of us 20% of the market value of the home. The balance of his estate is to be divide equally among the five of us.

    I just found out that he added my sister to the title as a joint tenant and though the will says she has to pay us each for 1/5 the value of the house, my understanding is that if she is joint tenant, the house becomes 100% hers, regardless of the will, when he passes. My father said he checked and the will supersedes the joint tenancy, I believe he has been misinformed. I do believe my sister will not pay us, if she doesn't think she has to, regardless of my fathers wishes.

    Am I correct about the will not mattering in this case, because the will was last done about a year ago and he added her to the title last month.

    Can you tell me if I am correct in that the house will be hers, will or not and that she will not have to give us anything.

    Thank you in advance for your answer.

    Regards,
    Mike

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    Replies
    1. Hi Mike,

      A will does NOT supersede a joint tenancy. However, your father is partly correct.

      When there is a joint tenancy between a parent and a child such as the one you describe, on the death of the parent, the house is held in trust for the estate. At that point, there has to be a determination made about WHY the property was put into joint names. Was it put in joint names so that the child would inherit it? That would be a "true" joint tenancy. Or, was it put into joint names only for convenience or to avoid probate fees? Not a "true" joint tenancy.

      In order to determine whether it's a "true" joint tenancy, the executor (and if need be, the court) will look at what evidence there is as to the parent's intention. In your case, you've said that your father talks about the house in the will, and has said that he intends for her to own it. Perhaps he believes that the will shows his intentions in favour of all of his children, but I'm not sure that it does.

      If your sister refuses to pay you, the easiest remedy for that is to reduce her share of the rest of the estate, and re-direct her inheritance to the rest of you. That will only work if there are enough assets in the estate.


      If I'd been involved in your father's estate planning, I probably would not have muddied the waters by creating the joint tenancy, though of course it's easy for me to say that when I don't know much about the estate. If there was only the will and no joint tenancy, the will could say that she only gets the house IF she pays the other kids, but as I said, adding the joint tenancy has created some confusion.

      Hopefully this particular sister is not the executor. Whoever is the executor should, when the time comes, hire a lawyer with some experience in estate matters who can help the executor manage the estate.

      Your sister won't need the executor's help to change the title after your father's death. However, the executor is the one who will be able to manage the estate so that the sister's share is reduced by the amount she owes her siblings.

      I hope your fears are unfounded and that it all goes well.

      Lynne

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    2. Thank you so much for giving up your time to help out so many very confused people.

      Mike

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  4. My husband and I are considering purchasing a rental property. We have 2 children (13 and 16). Is there a way we could put it in our childrens names, as a way to help them get a start when they are older?

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  5. My husband and I are considering purchasing a rental property and would like to put it in our childrens names if possible as an investment for them to give them a jumpstart. They are 16 and 13--what are the implications? Can we do this, and how would be the best way?

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    Replies
    1. You can't put it into their names until they are adults. I cannot urge you strongly enough to reconsider putting two names on one property. It sounds so simple, and it's easy to do, but it never works.

      Your children will be individuals, each with his or her own plans, goals, and agenda. It is highly unlikely that one property will fit into those plans and goals, and that two people with separate lives will be able to agree on all of the necessary things to own property together.

      I have seen literally hundreds of families in which a property put in the kids' names by the parents destroys the relationship between the children. Either wait until you can give each of them their own property, or find another way to give them a start.

      In addition to problems agreeing on if/when to sell/mortgage/rent/maintain/improve the property, there may be tax issues for the kids as well. Given that the property is not one in which they will live, once they buy one of their own to live in, the increase in value on the rental property becomes taxable upon sale or disposition.

      Perhaps you should sit down for a chat with a financial advisor who can give you some ideas on how to use your current money to your children's future advantage. I love the idea of giving them a boost, but I have concerns about them owning a property together.

      Lynne

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  6. I have a land property which I owned before I got married. My new wife is pusshing me to write a new will where she would get half the land If i die. Since I owned and fully paid this land 5 years before I met her, I want to give it to my son. my wife object to it and even discussed a divorce If I am not fair with my kid and hers. How can I assure my son gets the piece of land and not my wife and her son can touch it. I tought making the land a joint tenant with my only biological son. Thanks, What would be the tax implications.

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  7. hi Lynne. I have been reading quite a bit of your stuff on joint tenancy. I have a question- (in Alberta)my parents have entered into a joint tenancy with my brother and his wife on the land title for their acreage. Hoping to avoid problems with my other 4 siblings they have given each of them a considerable sum of money as their part of the inheritance and have stated in their wills that these 4 have been given monetary compensation in lieu of lands. All other "stuff" will be divided equally. they have told them all that this is what they want as well. However; there are a couple who have made it clear that they think they should have more money and have threatened to fight the will. Is the joint tenancy enough to stop them? I read on one of your blogs that a paper could be drawn up saying anyone who contests the will ...etc. Would something like that help? Perhaps if they contest the will they would be eliminated from inheriting anything at all or .. any ideas? It sickens me that my parents are still alive and my siblings are acting that way. I would appreciate any help you can offer thanks

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  8. I enjoy reading all the post. I bought a condo using my money but in my son name,the mortgage is in his name too,but i am paying the taxes .The lawyer has made a trust paper that he is holding in Trust .is it better to change the title in my name or keep in his name .After my death what will be the Tax consequences and the probate fee.

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