What Adding a Child to Title Actually Costs

There is a tax planning idea that older homeowners, specifically parents, have at one point or another.

And I'm sure you've encountered it... I get at least a call per week about it:

"We were thinking of just putting the kids on title now. That way they avoid probate later."

Here's how this idea works.

The parent and child go on title as joint tenants , which carries the right of survivorship. When the parent dies, the property passes automatically to the child, outside the estate. It isn't counted when estate administration tax is calculated.

There is a benefit here.

Probate tax on a $1,000,000 property with no mortgage is $14,250.

And there are some situations where this works.

But there are also many reasons why it isn't a good idea.

Here are those reasons:

• Capital Gains
  If it isn't the parent's principal residence (a rental, a cottage, a second property) the transfer is a disposition. It triggers a capital gain on the share given away, and that figure can exceed the probate tax.
• The Child's FTHB Rebate
  Without a trust agreement, that child now owns a home. This means if they have not previously owned a home, they lose out on their FTHB Land Transfer Tax Rebate. That's $4,000 everywhere in Ontario, and $8,475 on a purchase in Toronto.
• Severance of Joint Tenancy
  To avoid probate and get the benefit of the right of survivorship, you would take title as joint tenants. Either party at any time without notice to the other can sever the joint tenancy. This is a risk if the relationship breaks down.
• Control
  The parent can't sell or refinance without their child's signature. Every decision about the house now needs all registered owners.
• Marital interest
  If the child separates from a spouse, that interest can be pulled into a family law claim.
• Creditors
  If the child becomes insolvent, their share may be available to satisfy their debts. Writs and claims can attach to it.
• Partition and Sale
  A registered owner can apply to court to force a sale of the property at any point.
• Multiple children
  If one child goes on title and the plan is to split the value later, the family is relying on that child to do the right thing. The recourse if they don't is long and expensive.

Now, there is a way to mitigate some of this.

The parent and child sign a trust agreement confirming the child holds the property in trust for the parent and is on title solely for the survivorship benefit.

That deals with the creditor exposure, the marital claim, and the rebate problem.

But then it doesn't necessarily avoid probate tax. What it avoids is needing probate to sell the house.

So then the whole maneuver becomes moot.

– – –

The main point here is that while this method can be used to reduce potential probate fees, in most cases the risk far exceeds the intended benefit.

Latest YouTube Video: