Taxes … Feh! Who needs them? Well, actually, we all do. At least if we want to keep our cities, provinces, and Oh, Canada operating.

Still, that doesn’t mean we have to enjoy paying them. Maybe that’s why you’ve thought about establishing joint ownership with right of survivorship (JWRS) on some of your assets. In Ontario, it can be a tempting way to get around paying probate taxes when you go.

Should you do it? For some, it may make sense. But there also are some serious “gotchas.” Before you leap at the idea, let’s take a look at the risks involved.

How JWRS Works

Probate is the legal process for certifying that your final will truly is your final will, and your estate administrators are the legal authorities to deal with your assets. For many years, Ontario residents have faced a probate fee or tax of a half-percent on the first $50,000 of an estate value, plus 1.5% on the rest. To put that in context, if your estate is worth $2 million, probate taxes would be about $30,000.

Who wouldn’t want to keep this cash in the family? That’s where JWRS comes into play. If one JWRS owner predeceases the other, the jointly held assets automatically transfer to the surviving owner by law, instead of becoming part of the estate settlement. This means the assets do NOT go through probate, which means they DON’T incur probate taxes.

So far, so good. But before you rush into establishing that JWRS property, let’s consider some of the reasons that letting the probate tax “tail” wag your estate planning “dog” could leave you getting bitten in the end.

Those JWRS Tax Savings Can Cost You

Establishing joint ownership to avoid probate tax may only be a good idea if it also makes sense within your own and your family’s greater goals and circumstances. For example, here are at least four points to consider:

  1. Probate taxes aren’t the only taxes around. If you want to establish joint ownership with someone other than your spouse, you may have to dispose of the asset first, for tax purposes. For example, say you’d like to add your child or a sibling as a joint owner of the family cottage. Guess what? If you don’t plan the transaction just so, that could generate a mean tax bill, then and there.
  2. Changing ownership to JWRS does not enable income splitting on your tax returns. The income attributes back to whoever accumulated the asset, even once it’s jointly held.
  3. Credit and asset protection matter too. Are you a business owner in an occupation where lawsuits happen? If so, your spouse may be best off owning assets separately, just in case. Similarly, what if your adult child has partial ownership of your home and is sued or goes through a divorce? If you haven’t properly documented the gift with respect to matrimonial law, their interest in your home could end up in very wrong hands.
  4. Joint ownership isn’t just a theoretical exercise. When you establish JWRS, you really and truly are sharing ownership rights, responsibilities and risks. You’d better be able to trust one another, come what may. For example, say a widow puts the family home in joint name with her son. Once it’s a JWRS asset, she’ll need her son’s consent if she ever wants to sell the property. This could create some stressful conversations if the two are not of like mind at the time.

Bottom line, if you are considering establishing joint ownership to avoid probate taxes, make sure you’ve thought through all the dynamics involved. Too often, I’ve seen well-intended families focusing on avoiding probate tax while losing sight of protecting even greater assets.

What other questions can I tackle for you and your family in future “No Dumb Questions”? Let me know, and then subscribe to my channel and connect with me on LinkedIn. I think you’ll find the conversations are never too terribly taxing!