Real Estate and Estate Planning Intertwined: adding children on title to ‘avoid probate tax'
We get contacted on a regular basis by either the parent or adult child advising us that they heard from someone somewhere that the child needs to be added on title to the parent’s property as a joint owner to avoid probate fees (estate administration taxes) when the parent passes away. They have been told that this is a simple process and would like to schedule a meeting with the lawyer tomorrow to sign the documents and have the child added on title asap.
But, this isn’t as straightforward as it seems. Adding a child on title to a parent’s property as a joint owner can be risky, and has a number of draw backs for both the parent and child that must be considered.
Under the law, when an adult child is added as a joint owner on a parent’s property, there is a presumption of a resulting trust. This means that it is presumed that the child is holding their interest in trust for the parent. In order to rebut this presumption, the child would have to establish that they had a real beneficial interest in the property, which may include showing that the child actually lived at the property along with the parent, and/or contributed to the household expenses and mortgage payments (which we find is usually not the case), or that the parent truly did intend for the transfer to be a gift at the time that title was transferred.
Additionally, other siblings who were not added on title could potentially be left out of the inheritance even though the parent had anticipated that the child on title would split the proceeds of the sale of the property amongst all of their children equally following death. Further, if the property is not the child’s principal place of residence, there could be capital gains tax implications for the child. Adding a child on title as a co-owner also exposes the property to potential creditors of the child and spousal claims if the child is married and subsequently divorces. Lastly, as the parent, you would lose full control over your home and would need obtain your child’s consent if you wanted to mortgage or sell your property in the future.
When you take all of these factors into consideration and when you consider that the amount of probate tax currently payable in Ontario on $1,000,000 is $14,250, depending on the circumstances, the parent may ultimately decide to simply deal with the property in their Will and let it fall into their estate.
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Werhun Law is a law firm located in Etobicoke serving the Greater Toronto Area. Werhun Law provides services primarily in residential and commercial real estate, mortgages, commercial leasing, and wills and estates. If you have any questions or are in need of legal services you can contact us at email@example.com.
The information in this post is for general informational purposes only. It does not constitute legal advice and does not create a solicitor-client relationship.