Transferring Title to Adult Children

Every real estate lawyer frequently hears the following request:

Should I add one or more of my children to the title of my home?

Many people like the simplicity of this arrangement, as a joint tenancy, which can be used to automatically transfer their property to the next generation upon their death. It avoids probate taxes (also called the Estate Administration Tax) and can be done relatively quickly. However, such a transfer comes with often unforeseen risks.

Joint Tenancies

A joint tenancy is one of two may types of land ownership used in the common law provinces of Canada, where two or more owners jointly share in the entirety of the property, and each has the right of survivorship. A right of survivorship allows each tenant the right to automatically assume title upon the death of one of the owners without it falling into the estate of the deceased. Because of this, no probate fees are paid on the property since it does not form a part of the estate. This contrasts with the second major type of land holding, a Tenancy in Common. The property is held in designated percentages without a right of survivorship.

Legal Presumptions

However, certain assumptions apply in Canadian law. There is an automatic legal presumption that when a parent gives an interest in their property to an adult child, the child holds the property “in trust” for that parent. This is particularly true if the transfer is gratuitous and there is no written evidence regarding the intention of the transfer. Suppose the parent wants to gift the property to the adult child ultimately. In that case, it is advisable to document this intention by a deed of gift at the time of the transfer. Otherwise, the property will still have to be included in the estate calculation and advise the same probate fees as usual.

Advantages of a Joint Tenancy

Ontario residents pay a relatively high probate fee compared to the rest of Canada. Coupled with the rapidly increasing cost of real estate across Canada, this is one of the main reasons for adding the intended beneficiary of the property as a joint tenant. When the transferor dies, the intended beneficiary of the property takes title under the right of survivorship clause. The transfer is quick, cheap, and easy compared to probating the estate, which comes with the probate tax and sometimes even takes several years.

Disadvantages of a Joint Tenancy – Lack of Proper Equalization

It is sometimes more complicated. What if there are multiple children, each with a family of their own? Further, one of the children has spent their adult life taking care of the elderly parents, seeing to their needs, and helping with home maintenance. The parents feel that the caregiver-child should be given the family home while the other children can share in the remainder of the estate. Accordingly, they add the caretaker child onto the title of their home as a joint tenant.

However, if the remainder of the estate is not large enough to properly equalize each other children, the resulting disappointed beneficiaries could tie up the estate in litigation for years. Another complication might arise if the caretaker child predeceased their parents. Without a proper provision to gift the home to their heirs, this child and their estate would be accidentally disinherited.

Loss of Property Control

The second concern is the loss of control over the real estate. If the parents wish to mortgage or sell the property later in life, they would not be able to do so without the consent of the child or children on the title.

Further, the children on title could also sever their share. If two parents and a child are on title as joint tenants, that child could sever their one-third interest without their permission if they so wish.

Pooling the Property into the Child’s Assets

Third, anytime a child is added to the title, their share in the property now belongs to their total asset pool. If, for example, that child divorces their spouse later, the proportionate share in the real estate would be subject to matrimonial equalization, and half of it would go to the spouse. This is also true of other creditors who might be interested in the child’s assets. 

Taxable Consequences

Most importantly, as with any disposition of property, there are tax consequences. When the parents transferred their interest into a joint tenancy with their children, this disposition might give rise to a large capital gain. Care must be taken to ensure the principal residence exemption applies, especially if the parents own multiple properties. It is always wise to ensure that property transfer tax exemptions are available when the child is added to the title. Another taxable consequence is the possibility of a child who never owned property forfeiting their right to a first-time homebuyer land transfer tax rebate.

The very basic, specific situation where adding a child to the title makes sense and carries low risk is with an only child, where wills have been executed and the goal is to streamline the estate distribution for their sole beneficiary. However, as always, this blog post does not constitute legal advice and was written solely to provide information. If you would like to consult with a lawyer about the issues raised in this post, please contact Empel Law Professional Corporation at 416-500-1937.

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Arkadiusz J. Empel urodził się w Katowicah. Jako dziecko emigrował do Kanady, razem z rodziną, lecz wrócił jako student aby ukończyć Pracę Magisterską w Krakowie. Przez swoją pracę z polonią w okolicy Toronto utrzymał władność w swojim języku ojczystym. Jeżeli Państwo życzy się skonsultować prosto z adwokatem Polski, proszę przedzwonić na numer 416-500-1937.