Generally, from an asset protection perspective, it is preferable to own an asset such as a house jointly with someone as a tenant in common, as opposed to joint tenants.
This is because if one party passes away, their ownership interest then can be directed to a testamentary trust under their will, effectively protecting that share of the property.
In contrast, if the asset was owned as joint tenants and the owner with the low risk profile passes away, the at-risk owner would then automatically have 100% of the property in their name.
For tax purposes, it is important to note that assets owned via a joint tenancy are deemed to be owned as tenants in common, in equal shares.
This means that the conversion from one ownership mode to the other has no tax consequences.
It also means that the death of a joint tenant owner will cause a tax event.
For example, on the death of one of two joint tenant owners of a pre-capital gains tax (CGT) property, the ‘notional’ half share of the deceased owner is converted into a post CGT asset (with a market value as at the date of death).
One of the leading cases in the area will be summarised in next week's post.
** for the trainspotters, the title here is riffed from the Massive Attack song ‘Protection’.