We have previously written several times in this space about the risks presented by using joint tenancy as a cheap or “do-it-yourself” estate planning tool (past articles here).
These risks have been underlined by further BC Court decisions in the last couple years. In particular, a case called Petrick contains something of a chilling warning for parents thinking of transferring assets into joint names with their children.
In 2006, Ms. Petrick purchased a new residential property for herself, primarily with the sale proceeds from her previous property, with the remainder funded by a mortgage. The new Property was put into her and her son’s names as joint tenants, and both signed on the mortgage. The son, who at that time was a successful businessperson, never lived there.
The son’s business later ran into financial difficulties and became insolvent. He transferred his share in the Property to his mother, but his creditors, via his trustee in bankruptcy, brought a court proceeding to undo this transfer. The question was whether the joint tenancy had given the son an equitable or beneficial interest in the Property, which the creditors could collect against. If not, then his mother was the only “true owner” and the creditors would be out of luck.
The Court decided that the son did have an equitable interest in the Property, in part because he had co-signed for the mortgage. As a result, the transfer to the mother was set aside, and 50% of the Property’s value would be available to the son’s creditors (although the Court ordered that they could not seize and sell that part of the Property until the mother either sold it or passed away).
This decision is a tangible expression of the risk that is taken when a parent adds a child as joint owner. In this case, the outcome is particularly sad for the mother because a) she probably did not need her son to co-sign the mortgage, and b) she paid far more than 50% of the value of the Property, but her estate would end up only with 50%.
This decision goes to show that joint tenancy is not the easy, cheap, effective and no-risk tool that many people assume. It may be easy and cheap, but it is sometimes ineffective and it certainly comes with many risks.