Real Estate: Setting Up a Tontine to Protect the Surviving Spouse

The tontine, also known as a "growth clause," is not very well known, but it offers many advantages. 

A tontine clause (tontine agreement) included in the deed of purchase for real estate can be beneficial if you are buying as a couple. It avoids the risks associated with joint ownership and guarantees that the surviving spouse will own the entire property. In fact, upon maturity, the agreement is dissolved, and the funds in the account or the real estate are transferred to the surviving beneficiary.

Tontines can involve either real estate or a pooled capital fund. The purpose of a tontine is that the money contributed, the proceeds, the interest, or the real estate purchased belong to the last surviving member.

Simply put, a tontine is a contract entered into by at least two people at the time of purchasing a property. It specifically provides that only the surviving party will be considered the sole owner of the entire property as of the date of purchase. 
 

All co-owners enjoy the property throughout their lives, under a regime of joint ownership rather than undivided ownership. In the event of the death of one of the purchasers, since the property is deemed never to have been part of the deceased’s estate, it is not included in the estate and is exempt from the rules governing the reserved share and gifts. Caution is advised, however, because in the event of a disagreement, the tontine can pose difficulties regarding management and withdrawal. 
 

The main advantage of a tontine is that the share passed on to the survivor is exempt from inheritance tax, which can be as high as 60 percent for non-relatives. The applicable tax is the tax on transfers for consideration (DMTO). 

This is equivalent to the costs associated with purchasing real estate (5 to 10 percent). "When making a purchase, it is prudent to take out life insurance that provides 100 percent coverage for both buyers so that the surviving spouse is not forced to sell the property if they lack the resources to pay off the loan, 

As a “contingent” contract, a tontine purchase must meet the conditions of contingency. All purchasers must contribute to the cost of the property and have a similar life expectancy. This would be the case if one spouse were significantly older than the other. Otherwise, the tontine purchase may be reclassified as a gift.