Should I Add My Children to Title?
We are often approached by parents wanting to add their children to the title of the parents’ property.
Adding adult children to title can be an effective strategy to reduce probate fees and at times, to avoid the probate process altogether. However, it is not a one-size-fits-all strategy and due to new government reporting requirements, now requires more consideration.
When adding children to title, it is important to obtain well-rounded legal and tax advice. If this strategy is improperly implemented, it could result in unnecessary tax consequences, costs and headaches in the future.
There are generally two methods when parents add their child (or children) to title depending on a number of circumstances, including whether the parents intend the child to become a true owner of the property now, or exclusively upon the parents’ passing.
One method is that parents add their child to title as a joint-tenant owner and gifting that interest in the property to the child now. This means that the child is a true owner of the property now jointly with the parents. Then upon the death of the parents, the child becomes the sole owner of the property, without the property having to go through the probate process or paying probate fees on the property (probate fees are currently approximately 1.4% on the fair market value of the property, less any secured liability, such as a mortgage). At the same time, as a true owner of the property, the child is responsible for their portion of ongoing liabilities, such as property taxes, strata fees and importantly, for any tax-implications, such as capital gains.
Another common method when adding children to title is using a bare trust with a gift of survivorship, meaning that the parents remain the true owners of the property and the benefit, liability, obligations and tax implications remain with the parents during their lifetimes. Upon the parents’ passing, the children become the true owner. However, with the new provincial and federal government reporting requirements, such as the Land Owner Transparency Act (“LOTA”), Underused Housing Tax Act (“UHT”) and the new trust tax filings, adding children to title using a bare trust and gift of survivorship strategy has become more costly and onerous.
Accordingly, when parents are considering adding children to title, it is important that that they receive comprehensive legal and tax advice.
Some items to consider when adding children to title:
- Children’s Age: Children who have not attained 19 years of age should not be added to title.
- Estate-Plan: Adding children to title should not be inconsistent with the parents’ estate-plan.
- Intentions (Gift or Estate-Planning): By adding a child to title, do the parents intend for that child to be a true owner of the property now or are the parents to remain the true owners of the property during their lifetimes? Both methods are possible and could have tax implications.
- New Reporting Costs: If using a bare trust and gift of survivorship, is the child aware of the ongoing reporting obligations for LOTA, UHT and trust tax filings? These costs could amount to a few hundred to one or two thousand dollars per year per property.
- Use of Property: Whether the property is the parents’ principal residence, the child’s principal residence or an investment property should also inform the decision. If adding a child to a parents’ principal residence, the child should seek tax advice and ensure they are aware of potential capital gains implications in the future.
- Control: When adding a child to title, are the parents willing to give-up complete control of the property? If the parents wish to sell the property in the future, and if the child does not want to sell the property, are the parents willing to give-up the unilateral decision-making power?
- Child’s Spousal and Creditor Claims: If gifting part of the value of the property to the child now, are the parents concerned about any potential creditor and/or spousal claims now or in the future?
The best way to ensure that your assets pass to your children or beneficiaries, as you intend, is to have estate-planning completed with an estate-planning lawyer.
If you want to know if adding your child or children to title is a good idea in your particular circumstances, do not hesitate to contact one of our estate-planning lawyers for more information and advice at email@example.com or contact the writer at firstname.lastname@example.org.
**Bell Alliance LLP does not advise on taxes and any reference to taxes such as capital gains, should not be interpreted as legal advice or tax advice. Any reference to tax in this article should be a prompt for the reader to obtain tax advice from their tax accountant.