Q: I have a farming operation and there is a mortgage against the land. I am thinking of involving my son in the operation by putting the land into a joint tenancy and having him help pay the mortgage. Would this be a good thing to do?
A: A joint tenancy with right of survivorship is a common estate planning technique often used to avoid having to probate an estate. Spouses or a parent and child will often hold land in such an arrangement. The right of survivorship means that the land can be passed to the survivor without the cost and time involved in probate.
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A joint tenancy is one form of joint ownership; the other is a tenancy in common. In a joint tenancy all the owners have an equal interest. In a tenancy in common the interests can vary; one can have a four-fifths interest and the other a fifth interest. In both forms of ownership, each owner has an equal right to access and use the property.
A tenancy in common does not include a right of survivorship. When one tenant in common dies, his interest passes to his estate, not to the surviving co-owner. Joint owners are assumed to be tenants in common unless the title clearly states otherwise.
Co-ownership only ends by agreement when one sells to the other or by court order. In event of a disagree-ment, a court can divide the land between the parties, give one owner the right to buy out the other or order a sale with the proceeds to be divided.
In some instances, a joint tenancy can become a tenancy in common. In some provinces that can happen by one owner transferring his interest, giving notice to the other or acting in a way to indicate that he no longer wants the land in a joint tenancy.
If there is a mortgage against the land and you want to transfer it into a joint tenancy, you may need permission of the mortgage company to do so. Mortgages often have a clause restricting transfer of the land without the company’s approval.
There are many other ways you can involve your son in the farming operation besides putting the land into a joint tenancy. A common method is to incorporate the farm, with both you and your son being shareholders.
There are other alternatives. You can sell the farm under an agreement for sale to your son, wherein he buys you out over a number of years. You can also create a partnership or
give him the farm.
What is best for you will depend on many factors including: whether your son is committed to farming as a career; whether you and your son will jointly farm and if so, how decisions will be made and income divided; whether both you and your son need the farm for income; your retirement plans and whether income and sale proceeds from the farm are needed to fund your retirement; whether there are other siblings; and income tax issues.
I would strongly advise that you consult a lawyer or accountant knowledgeable in intergenerational farm transfers to discuss the
various options.
Don Purich is a former practising lawyer who is now involved in publishing, teaching and writing about legal issues. His columns are intended as general advice only. Individuals are encouraged to seek other opinions and/or personal counsel when dealing with legal matters.
