The old saying is that “your house is your castle”. With home ownership now accounting for a large proportion of many family’s wealth, the saying may be as true as never before.
How ownership of the home should be registered remains an important question.
Advantages of Joint Ownership of the Residence
In the usual case, joint ownership between spouses remains the preferred and best alternative for registration of ownership of the home. When registered jointly, outright title to the property passes to the surviving spouse on death by operation of law, and regardless of what might be provided in the Will. Automatic and inexpensive transmission of the ownership to the surviving spouse is one benefit, but the chief benefit is that the value of the jointly owned property will be excluded from the calculation of estate administration tax on the death of the first spouse. The current rate of estate administration is 1.5% (for practical purposes). On a Toronto home worth, say $750,000, this is a saving of $11,250.
If title of the house is now registered in the name of only one spouse the cost of transferring it into joint ownership is very modest. First, the transfer can be completed “for natural love and affection” and there will be no land transfer tax. Secondly, spouses will usually designate their house as their “principal residence” for tax purposes, with the result that the transfer of title from one spouse to both spouses jointly will not trigger capital gains tax liability.
When Joint Ownership Between Spouses Should Be Avoided
Although joint ownership is desirable in most situations, there still remains situations in which it is not desirable. One instance is one in which one of the spouses is exposed to liabilities perhaps a guarantee to a financial institution for a business loan. If the guarantee is called on, the financial institution has a claim against the house to help settle liability on the guarantee.
If one of the spouses is a lawyer, doctor, architect or other professional with on-going liability in negligence for errors and omissions, there is always some risk of a catastrophic claim which exceeds the liability insurance, or the existence of some circumstance which renders the insurance coverage invalid.
Joint ownership of the home is also not appropriate when the intention is that the surviving spouse will not acquire sole ownership and control of a home after death of the first spouse. This most often arises in the context of a second marriage, and while the titled spouse may make provision for their second spouse to continue to inhabit the house (for a limited time after their death), the real testamentary intention is that the value of the house will ultimately accrue to the benefit of the children of the first marriage. Such circumstances cannot be dealt with by joint ownership, and must be dealt with in the Will.
© MORRISON BROWN SOSNOVITCH LLP 2013. All rights reserved.