Tag Archive for property

Legal and Beneficial Ownership

In an earlier blog we discussed the two types of ownership of property, Joint Tenancy and Tenants in Common.  Joint Tenancy and Tenants in Common are fairly easy to understand, because they are straight forward, but there are a few other types of ownership, which you should know about. These alternate forms of ownership can affect your ability to deal with your land. In this blog, I am going to discuss the concepts of legal and beneficial ownership. Legal ownership and beneficial ownership are two different things. Legal ownership of property is the person on title which has no real value to it. And the beneficial ownership is the actual property owner. The Legal owner is not the true owner of the property; he/she holds the title for the beneficial owner. The person, who owns the property, owns the both, the legal title and the beneficial title, but in some circumstances it is not the same.

Legal owner: The legal owner is the person under whose name the property is registered. Under the Legal ownership the legal owner has no right to sell or rent the property and has no right to make any decision about the property. The Legal owner is not the true owner; but merely holds the title for the true owner.

Beneficial owner: The beneficial owner as the “real owner” of the property is entitled to receive all revenue from the property and is the decision maker with respect to all aspects of the property. The beneficial owner determines the rent charged, the terms of any leases or tenancy agreement, who to hire as a property manager, who to finance the property with and when to sell the property. The beneficial owner has all control over the property. Beneficial ownership can be used when parents want to protect their future and they also want their kids’ names be as owners of the property. For example; grandparents want to give their property to their grandchildren, but they also want to keep some control of the property, in that situation they can transfer the legal title, but they can keep the beneficial title.

To facilitate the division between the legal and the beneficial owner there should be a legal structure called a bare trust. A Bare trust is a type of a company which is used to hold a legal and registered title to the property as nominees, in trust for the beneficial owner of the property. The share of the bare trustee company is owned by the beneficial owner.  It acts on the directions of the beneficial owner. It is a single purpose company, created to hold the specific property, with no other history and assets.  It cannot hold more than one property with another company for different properties. The legal relationship between the bare trustee and a beneficial owner is needed to be set out in the bare trust agreement. There are so many advantages of having a bare trust. The transfer of the beneficial ownership is not registered in the land title office, so as the transfer is not filed, it is not subjected to pay the Property Transfer Tax, but if the transfer is for some reason, registered with the land title then the beneficial owner is subjected to pay the Property Transfer Tax.

When the purchaser buys the property, the purchaser will buy the beneficial interest in the property at the decided value and will also buy a share in the bare trust for $1.00.

The other advantage of the bare trust is that it allows multiple co-owners to hold the beneficial interest in the property, with only a bare trustee on the title. It also allows changes in co-owner without paying the Property Transfer Tax.

While there are many advantages of having a bare trust, there is also a disadvantage of it. It is very costly to establish and maintain the trustee company. It costs approximately $1,200 to incorporate a trustee company and prepare the bare trust agreement. And the annual cost of maintaining the bare trustee company is approximately $300 per year.

To get more information feel free to give us a call @ 604-503-3853, I am always happy to serve you.

 

 

Tenants in Common and Joint Tenants

 

When clients come into my office to get their work done for a purchase or for Estate planning, we ask a lot of important questions to make sure we prepare all of the documents correctly. This is so we can stay prepared and avoid mistakes when the title changes hands in the real estate transaction. I always want my clients to be safe in the future, their fore I want my clients to be honest and to provide me with all the information that they think is important for me to know before we start our work.

The most important question that I always ask my clients is how they want to hold title, meaning how they want their property to be owned by them as “Joint Tenants” or as “Tenants in Common”. When I ask this question, most of the time they ask me in return, “does it make any difference?” In land transactions “Joint Tenant” and “Tenants in Common” is the most important fact, which shows your share in the ownership of the property. Most clients think, it is the same thing, and they often think these words mean the same, but in reality they are not. Property owned by more than one person must be owned in one of two ways: joint tenancy or tenancy in common. In practical terms, the chief distinction between joint tenancy and tenancy in common is the right of survivorship. Only joint tenants enjoy right of survivorship.

The term “Joint Tenancy” is used to describe any situation where property, real or personal, is held in a manner which, at law, the death of one joint owner results in the property passing to the surviving joint owner(s) as opposed to passing to the estate of the deceased owner. All the owners have equal rights and they are held liable equally for anything. In easy words if the property is held under joint tenancy by two people, if one of the owners died, the share of the deceased owner passes to the surviving owner.

Let’s study this with an example: Dave, John and Smith bought a property together under Joint Tenancy. If Dave is unable to pay the property tax on time, then John and Smith are also liable equally, if Dave is unable to pay it, John and Smith have to pay Dave’s share. As the term “Joint Tenancy” also means the “right of survivorship”, according to this, after a few years, Dave dies, now the property is owned by both John and Smith equally. Because the property was held under joint tenancy, Dave’s spouse or children have no legal right on that property. A few years later, John dies, and now Smith is the only owner left of the property. With the joint tenancy, all the shares of the deceased owner will automatically go to the surviving owner. It can often be utilized for estate planning objectives. For instance, one spouse might use joint tenancy to make certain that the entire property held jointly by the spouses goes to the other, upon one’s death. Joint tenancy is frequently used between spouses for assets such as real property, investments, bank accounts and vehicles. Because joint tenancy creates the right of survivorship, when the spouse dies the property will transfer to the other spouse with minimal administrative issues. Because it does not form part of the estate, probate fees will not apply. Under Joint Tenancy no one can sell the property without written consent of each other.

Tenants in Common

Tenant in Common works differently than Joint Tenancy. A tenant in common is a form of ownership whereby each tenant holds a percentage of interest in the property. If one of the owners dies, that owner’s interest in the property passes to their estate, to be passed on, according to their Will. Tenants in Common can hold equal or unequal shares in the property.  Every party owns an undivided share in the property and as a result is free to possession of the whole property.  For example, there could be five persons who are tenants in common, but four of them could own 1/10 of the property each, and the fifth person might own 6/ 10 of the property. If the holder of a tenancy in common desires, either to sell or mortgage their interest in the property, that can be done by them, without the consent of the other tenants.  It is also possible for a tenant in common to apply the courts to “partition” the property or to sell the entire property and distribute the net proceeds of sale proportionately. Tenancy in common does not carry a right of survivorship as in joint tenancy.  In other words, if one of the tenants in common dies, the interest does not go to the other tenants, but goes to the estate of the deceased.

To understand this better let’s take one example: Let’s say Dave, John, and Smith bought property under Tenants in Common, Dave has 1/3 share in the property, John also has 1/3 share, and same with Smith. A few years later Dave dies, and his share becomes part of his estate. That means his share will be given to the person whoever is named under his Will, it could be his Wife or it could be his children. So “Tenants in Common” is the best option if you have been formerly married, have children from an earlier relationship, and have since remarried, you may perhaps desire to state in your Will that a clear piece of the worth of the estate goes to those children independently or jointly.  The only way this can be dealt with is in tenancy-in-common circumstances, because the interest would be deemed to be an asset of one’s estate.

If you are going to buy a house or need help with estate planning, feel free to give us a call for any type of information at 604-503-3853. I always try to provide the best service to make my client feel satisfied and I always make sure that my client understand all the pros and cons of work they are getting done.

First Time Homebuyer Exemption

It is a very exciting time when you start looking for a house for your family. It may be exciting but it is not as easy as it sounds. There is a lot of stuff that you need to be very careful about. I am specifically going to discuss the first time home buyer exemption for the first time homebuyer. If you are buying a house for the first time in British Columbia you might be eligible for the first time home buyer exemption.

Under the First Time Homebuyer Exemption program, people who meet certain requirements, and are first time homebuyers, are eligible for the exemption in property transfer tax, which is a provincially payable tax, whenever property changes hands.

Other requirements necessary to claim this exemption:

• Person claiming the exemption must be a Canadian citizen, or permanent resident as defined by the Canadian Immigration and Refugee Protection Act;
• Must have lived in BC for 12 consecutive months immediately before the date the property is registered, or have filled 2 income tax returns as a British Columbia resident during the 6 years before the property registration date;
• Never owned an interest in a principal residence anywhere in the world at any time (a principal residence is the usual place where an individual lives);
• Never received a first time homebuyer’s exemption or refund.

Property requirements for the exemption are:

• The fair market value of the property (land plus improvements) should not be more than $475,000 to claim a full exemption.
• The land should not be more than 0.5 hectares (1.24acres).
• The property should only be used as your permanent residence

If there is more than one purchaser and only one of them is claiming the first time homebuyer’s exemption, then only the percentage interest acquired by the first time home buyer is eligible (if the market value of the property is under $475,000). The exemption is calculated on full market value of the property not on an individual’s share. You cannot claim the exemption on the property if the market value is over $500,000, but between $475,000 and $500,000 a partial exemption is given.

In some circumstances an exemption can be taken away, so in order to keep the exemption you should meet the following requirements:

• If it is an existing home, you must move into the home within 92 days of the date you register the title of the property.
• If it is vacant land, you must build and move in within 1 year of the date you register the title of the property.
• You must use the property as your permanent residence for the first year

Please give our office a call for further information @ 604-503-3853