Does a will cover property you own with someone else?
A will deals with a person’s estate. The estate includes all the property and belongings they own when they die, with a few exceptions. When preparing your will, you’ll want to keep these exceptions in mind. They’ll help you see the bigger picture as you do the hard but important work of planning for when you pass away.
What you should know
Estate planning involves working out how your affairs will be handled after you die. For most people, a centrepiece of this is to prepare a will. There, you can set out what will happen to (most of) your property and any minor children. But estate planning includes other pieces as well. For instance: designating beneficiaries in insurance policies and investment accounts, and dealing with any property you own jointly with others.
In its broadest sense, estate planning isn’t just about planning for your death; it’s also about anticipating the possibility that you can no longer manage your life. This could be due to an accident or a health issue or the effects of aging. There are documents you can put in place now that will help you in a future you couldn’t predict. They include an enduring power of attorney, a representation agreement, and an advance directive.
A key part of estate planning is turning your mind to any property you own with other people. In most cases, your estate does not include property you own with others, such as a joint bank account or a home owned in joint tenancy.
If one of the joint owners passes away, the property usually goes directly to the surviving owner(s). The property isn’t included in the estate of the person who died. It’s said to pass outside the will.
Reduced probate fees
Property that passes outside the will has a side benefit: escaping probate fees. Since the property isn’t part of your estate, the jointly owned property is excluded from the application for a grant of probate or administration. As a result, no probate fees are due on it.
There are two ways you can own something with others
Let’s get more specific. Joint ownership comes in two flavours. One is a joint tenancy. The owners hold an identical interest in the property, and can’t sell their interest unless all owners agree. The other flavour is a tenancy-in-common. Here, the owners hold separate, and not necessarily equal, interests. They can sell their interest at will.
Joint tenancy is by far the more common of the two arrangements. Most people who have a joint bank account or jointly own a home or a vehicle do so as joint tenants.
If you own any property with someone as a joint tenant, it typically won’t be covered by any will you make. When you die, your share in the property will usually go directly to the surviving joint owner(s).
Check on the type of ownership you have
Take time to dig into the specifics of how you own your property. Do you own as a joint tenant or tenant-in-common? If it’s a joint tenancy, the property typically isn’t covered by your will. If it’s a tenancy-in-common, the property is covered by your will.
Check with your bank to see how your accounts are set up.
Look at the registration paperwork on any vehicle you own.
Check the state of title for any real property you own (you can order the title certificate here, for a modest fee).
Now let’s talk about the less common scenarios. This is where jointly owned property is covered by a will. And so it does become part of the estate after death.
Property owned by tenants-in-common
An example is the above-mentioned tenants-in-common arrangement.
When a tenant-in-common dies, their share goes into their estate. Now the will does cover what happens to it. (If there’s no will, the law of intestacy kicks in to divvy up the estate.)
Where a joint interest has been gifted to someone
Sometimes even property owned in joint tenancy can be covered by a will. An example is where someone gives you a joint interest in a property, but it’s not clear they intended it as a forever gift — that is, yours to keep after they die.
Here’s a well known case where this happened. Some years before he died, a father made his adult daughter a joint signatory on his bank accounts. After he died, the daughter assumed the money in those accounts was hers. The court said: not so fast. The daughter didn’t prove the father intended to gift her the money in the joint accounts. So the accounts passed into the father’s estate.
This scenario comes up fairly often, where an aging parent sets up a joint bank account with an adult child. Here’s another example. The adult child couldn’t show the parent intended to gift her the money. Without clear evidence of an intention to make a gift, the account passes into the parent’s estate.
Transferring property to joint ownership
If you’re thinking of transferring property from your name alone to joint ownership, it’s important to get legal advice. There are drawbacks to be aware of. For one, you lose control: you no longer call all the shots. For another, you’re taking on more risk. Here’s an example: if a joint owner falls behind in paying debts, their creditors can make a claim against the property. Another example: if a joint owner’s marriage fails, their spouse can make a claim against the property. There can also be tax implications.
As well, a lawyer can advise on how best to make your intentions clear. In transferring property, you’ll want to be clear about the type of ownership involved, whether you intend to keep a beneficial interest in the property during your lifetime, and whether you intend for the other owner to get the property if you die first. Here’s an example of how careful documentation makes a difference.
There’s another category of property that isn’t covered by a will. It’s property for which you’ve designated (that is, named) one or more specific beneficiaries. If they survive you by at least five days, the proceeds flow outside your will directly to them.
Common examples are life insurance policies and registered retirement plans such as RRSPs or RRIFs. You can name one or more specific beneficiaries to receive the proceeds. On your death, the people you name will get the money directly from the policy or plan holder, and not from the estate.
Making a beneficiary designation
You can name specific beneficiaries for these kinds of assets either in your will or in the policy or plan itself. What if you change your mind and decide you want a different person to receive the proceeds? Any new designation, either in a will or in the policy or plan, will replace an earlier one.
On your passing
Be aware that in distributing your estate, your executor doesn’t consider any beneficiary designations you make under insurance policies or registered retirement plans. They fall outside the executor’s responsibilities.
If a spouse or child challenges a will, those other beneficiary designations come back into play. The court can consider them (among other factors) in determining whether the spouse or child have been adequately provided for.
Stay on top of your beneficiary designations
It’s important to keep these beneficiary designations up to date as your life situation changes. For example, if you divorce and remarry, a beneficiary designation won’t automatically change from your former spouse to your new spouse.
The executor you name in your will doesn’t manage any property that passes outside the will. The executor may help with the paperwork required to transfer the property, but they’re not under a legal duty to do so. Others will need to step up.
With a jointly owned car, for example, the surviving joint owner must go to an Autoplan agent, and bring a death certificate and various documents in support. ICBC has a checklist for estate transfers.
For a home owned in joint tenancy, the surviving joint owner must submit various documents to the land title office.
For a beneficiary designated under an insurance policy or registered retirement plan, the policy or plan holder will typically have paperwork the beneficiary needs to fill out.
Depending on what you want to accomplish with your estate planning, there are other steps you can take.
For example, there are ways to make a charitable donation outside of a will that can have tax advantages and reduce probate fees. Donating stocks or designating a charity as a beneficiary under a life insurance policy are examples.
Another example is setting up a trust outside of the will. This can accomplish several planning goals. It can protect your estate against a wills variation challenge from a spouse or child. It can provide for dependents for years down the road: a trust you set up can continue on past your death. It can keep things private — a probated will is a public document, whereas a trust is not. And it can reduce probate fees, which are payable only on estate assets.
Developing a charitable giving strategy or setting up and administering a trust are in the category of advanced estate planning. They’re best done with professional help.
