Typically, a married couple’s family home is jointly owned by them as a “joint tenancy”. This means that each person owns all of the property. When one owner dies, the surviving owner automatically becomes entitled to the deceased owner’s share, without it going through probate.
It may well be appropriate in many situations for all of the marital assets to be held jointly on this basis e.g. all land and buildings, bank accounts, shareholdings and investment. Many people are aware that “joint tenancy” ownership is a simple and inexpensive way to avoid probate, and this is sometimes true. For similar reasons, a parent, particularly a widow or widower, might transfer assets into joint ownership with an adult child or children. Before one rushes in to transfer all assets into joint names with a spouse or child, there are many factors to consider, such as the following:
1. Delays as opposed to avoids Probate
When either joint tenant dies, the survivor – often a spouse or child – immediately becomes the sole owner of the entire property. But when the survivor dies, the property still must go through that person’s probate. So joint tenancy doesn’t avoid probate; it simply delays it. Equally, if both owners die at the same time, such as in a car accident, the property must still go through probate.
2. Children from two marriages
When “blended” or “second” families are involved, with children from both previous marriages, extra care must be taken to avoid unforeseen outcomes such as: the husband dies and the wife becomes the owner of the property. When the wife dies, the property goes to her children, leaving nothing for the husband’s children.
3. Loss of capital gains tax benefits.
If a property is sold in the course of Probate, typically the Executor or Administrator can sell it without incurring any capital gains tax on the part of the Estate. Effectively the acquisition value (which is tax deductible in a CGT computation) is rebased at the date of death. When property has been held in joint tenancy, the surviving owner only gets a rebased acquisition cost on half of the asset. In other words were the survivor to immediately sell the property, he/she must pay the capital gains tax on his/her pre-existing portion of the asset.
4. Exposure to Consequences of Other Co-Owner’s Financial Dealings
A joint tenant is not entitled to convey land held in joint tenancy or acquire another interest in such land without first obtaining the consent of the other joint tenancy under Section 30 of the Land and Conveyancing Law Reform Act 2009, and any such conveyance is void. Consent means the prior consent in writing of the other joint tenant and if there is more than one, all of the other joint tenants.
However, under Section 31 of the 2009 Act, a trustee, mortgagee, secured creditor and a judgment mortgagee having an interest or estate in land which co-owned equity can apply to the Court for an order, which can include the following measures;
• an order for partition of the land amongst the co-owners.
• an order for the taking of an account of incumbrances affecting the land, if any, and the making of inquiries as to the respective priorities of any such incumbrances.
• an order for sale of the land and distribution of the proceeds of sale as the courts directs.
• an order dispensing with consent to severance of a joint tenancy where such consent is being unreasonably withheld.
• such other order relating to the land as appears to the court to be just and equitable in the circumstances of the case.
In other words, if a creditor (a bank, the Revenue Commissioners etc) obtained a judgment against your co-owner, that could ultimately result in a Court ordered sale of the property to allow that creditor claim your co-owner’s share of the proceeds. While you will be fully entitled to your share of the proceeds of sale, you will, nevertheless, have lost the property.
5. Incapacity. If either joint owner becomes physically or mentally incapacitated and can no longer sign his name, such co-owner would need to be made a ward of court and the wards of court office must give its approval before any jointly owned property can be sold or refinanced – even if the co-owner is the spouse.
6. Unstable Relationship
Having both owners own the entire asset is a disadvantage in an unstable relationship, regardless of whether the relationship is personal or professional. For example, if a couple is going through marital problems or two business partners are in dispute, neither party can sell or encumber the asset without the other party’s consent. Or, suppose the asset is owned with an estranged child. Before the asset can be sold, the parent(s) would have to get permission from the child or otherwise face a court application.
All of the above matters and indeed other factors pertinent to you set of circumstances should be considered in making a decision to vest property into “joint tenancy” ownership. In some circumstances such review can result in a decision not to proceed with a proposed transfer. Nevertheless in many circumstances it may still a good idea, provided you have considered all of the angles with your solicitor.
Solicitor and AITI Chartered Tax Adviser
Morgan McManus Solicitors
phone: from R.O.I. 047/51011;
from N.I. 0035347/51011
Practising in Northern Ireland and the Republic of Ireland.
Website : brilliantreddev.co.uk/morganmcmanus