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Recently, I learned that a grandmother had sold her home and put $1 million into a joint account with her three adult children. When one of her children unexpectedly predeceased her, that child’s own adult children were effectively cut out of their expected share of the inheritance from the joint account. Because the account was structured as a joint tenancy with rights of survivorship rather than as tenants in common, the deceased child’s legal interest passed automatically to the surviving joint owners instead of flowing through the estate. The adult grandchildren no longer speak to the aunt and uncle they were once extremely close to.

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It is easy to understand how families end up in arrangements like this. A parent might want to avoid probate fees and the delay that can come with settling an estate. Or it might be about convenience, making day-to-day banking or administration easier as they get older. But what looks like a practical shortcut can carry unintended consequences that are easy to overlook.

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In the case of the grandmother and her three children, the outcome ultimately depended on both the structure of the account and evidence of her intentions.

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This is just one example of how joint ownership, often intended as a simple estate-planning shortcut, can create serious tax, legal, and family consequences if not structured properly.

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The risks of joint ownership

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First, and often most consequentially, is that once a child becomes a true joint owner, they may also have a say in future decisions involving the asset. If the parent later wants to sell, refinance or renew a mortgage, the child may need to be involved in that decision. What appears to offer convenience can lead to a loss of control, particularly if disagreements arise or family circumstances change over time.

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Another often overlooked risk is how the child’s personal circumstances can affect the asset. If the child faces marital breakdown, creditor claims or legal proceedings, their ownership interest or even the perception of ownership can complicate matters and potentially expose the asset to claims or litigation.

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The extent of that exposure will often depend on the true beneficial ownership arrangement and the applicable provincial family and creditor laws. In a divorce, jointly owned property can affect how net family property is valued and how assets are divided, depending on the applicable provincial rules and any prenuptial agreements in place. Because these rules vary by jurisdiction, families should seek professional advice on how joint ownership and family law apply to their situation.

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Tax consequences can also follow. Some parents assume that adding a child to the title of their principal residence will have no tax impact. However, if the child has a true beneficial ownership interest and does not ordinarily inhabit the property, part of the future gain attributable to the child’s interest may not qualify for the principal residence exemption. In addition, while joint ownership may avoid probate in some cases, it does not necessarily avoid the deemed disposition and potential income tax consequences that can arise on death.