Should you really put your assets in joint name to avoid Ontario probate tax?
You have been to see your lawyer to update your will.  You have read about probate tax and when you asked what to do to avoid it, your lawyer suggested you put your assets in joint name. In Ontario, this means joint with right of survivorship (JWRS).  Upon death, these assets transfer to the other named owner by operation of law, do not form part of the estate, and are not subject to probate and probate tax.

Let’s take a step back.  Probate is a legal process that provides some confirmation of the will as the last will and protects those releasing assets to your estate.  Many years ago, the province added a fee (or probate tax) to this process as a source of revenue. The fee is 0.5% on the first $50,000 of the estate value and 1.5% for the remainder. For instance, this amounts to about $30,000 on a $2 million estate.  Ideally you would like to plan your affairs to avoid this tax if possible.

However, before changing the ownership of your assets, consider the following:

  1. Tax
  • If the person you wish to own the assets with jointly is not your spouse, there could be a disposition of the asset for tax purposes.  For example, tax can arise if you’d like to add your child as a joint owner of a rental property. Planning can reduce this impact, but it must be done as part of the transaction.
  1. Changing Ownership to JWRS is NOT Income Splitting 
  • The income attributes back to whomever accumulated the asset, even after the ownership change.
  1. Loss of Creditor Protection
  • You may own your assets separately to provide asset protection.  If you own the assets because your spouse has an occupation where they could be sued, separate ownership remains the wisest course of action.
  1. Shared Decision Making
  • The person you have gifted ownership to actually has ownership rights.  The widow who wishes to put her home in joint name with her child will require their consent to sell the property.
  1. Asset at Risk
  • If their child has partial ownership of your home and is sued or divorces, their interest in your home is an asset for these purposes.
  1. Loss of Control
  • You are giving up exclusive control of the asset.
  1. Loss of Capacity
  • You put these assets at risk if your joint owner, perhaps a spouse, loses capacity.  As we age, we can lose the capacity to make sound decisions.  We can be the victim of a fraud; we can decide we want to spend the money on something the other party does not consent to – and in JWRS it can be possible for one person to ‘spend’ the asset.

When you consider sharing ownership of your assets to avoid probate, do so thoughtfully and carefully. I have seen many people get caught up in minimizing probate tax– and lose sight of protecting the value of the asset itself.

Similar to all important decisions in life, weighing the pros and cons will help you arrive at an optimal decision.