The Joint Ownership Exemption to the Transfer of Owenership

When a family buys a cottage or other vacation home it is often with their intention of passing the home to their children.  As the original owners prepare to transfer ownership of the property to their children or other loved ones, there is an option which will help ensure that that the property can be passed in an affordable way which minimizes the tax burden on your family.

At a certain point during ownership the property taxes for this home will become “capped” for the original owners, meaning that even as the taxable value of their home rises, their property taxes will not exceed a fixed amount.   This cap provides an affordable way for the owners to maintain their property ownership while sharing it with their family.  However, when the owners wish to transfer their ownership of the property to their loved ones, this is considered an “uncapping event.”  What this means is that that when the owners give or pass their ownership to their children or other loved ones, the cap or limit on the property’s value is lifted leaving the new owners having to pay the taxes on the current fair market value of the property.  This property tax bill is usually significantly higher than the ones the parents paid, and in many cases, it may be an expense family members cannot afford.

Fortunately, families in this situation have an option which can prevent their loved ones from being burdened with this substantial increase in property taxes. The option allows the owners to add the new owners to their property deed as “joint tenants with rights of survivorship.”  The effect of adding someone to a deed in this manner is to create a co-ownership where the co-owner will maintain their ownership when the other owner or owners die.  This type of ownership will keep the property taxes from being uncapped when the original owner dies.

There are two requirements for the joint tenancy exemption:

  • One person must have been the original owner of the property. This ownership had to have been before they joint tenancy happened and at a time when the property taxes were not capped, or before the law which allows for this exemption was effective.
  • One of the joint tenants had to have been part of the joint tenancy since it began.

Depending on the circumstances, the joint tenancy exemption may be a good option for those seeking to transfer their ownership to the first generation of their loved ones.  However, this type of ownership will require agreement between the parties regarding the property use and potential sale. Additionally, co-ownership as a joint tenant means that the property will be subject to a joint tenant’s creditors. Another consideration however how long the family intends to keep the property.  If the intent is to keep this property for successive generations, this exemption will not spare the next generation from this tax burden.

The joint tenancy exemption provides one option for transfer of a family cottage with reduced tax liability. However, there are other options which may be better suited to your circumstances. Our office has experience helping families plan for their future and can help. Contact us today.

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