Think twice before adding children as joint title property owners

Many people hold title to their real property (e.g., their residence, farmland, the cabin) as joint tenants with one or more persons.

It is typical for spouses to do this because upon the death of the first spouse, the surviving spouse receives the property by “right of survivorship.” The advantage to this arrangement is that the surviving spouse does not need to probate the estate to have the title changed to reflect sole ownership of the surviving joint tenant, thus avoiding the cost of probate fees. This is often a prudent estate plan for spouses.

It is also quite common for the surviving spouse to then add one or more of their children to title as a joint holder to one or more properties.

There are some circumstances where this may be advisable, but where there are multiple beneficiaries, placing property into joint names with one child is often ill-conceived. It is true that this plan could mean that the estate does not require probate in order to be administered and distributed, but the consequences can be disastrous.

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Probate fees in Saskatchewan are certainly an expense, but the amount is comparatively conservative. In Saskatchewan, the rate is 0.7 per cent on each $1,000.

So, for example, an estate with assets valued at $1,000,000 would have probate fees equal to $7,000

While many people believe that the estate will also avoid taxes because title is held jointly, this is untrue. The tax consequences upon death are not affected by the fact that title was held jointly. This can create a false perception that the arrangement is more beneficial than it actually is.

The bottom line is this: it is true that the estate avoids probate fees on the value of the property as of the date of death. So, a quarter section of farmland worth $350,000 would fall outside the estate, and a savings of $2,450 for otherwise payable probate fees would be achieved.

Now, let’s compare that saving to some of the risks and pitfalls associated with this kind of arrangement.

One of the most common scenarios in estate litigation is where a widowed parent places one of their two or more children on title to their house, the cabin and perhaps some farmland. As above, the only advantage to doing this would be to avoid probate fees on these assets. Tax exemptions or rollovers that may apply are governed by the rules under the Income Tax Act. The parent may have said to that child, “I want you to ensure that all of my children are treated equally in accordance with my will, and regardless of the fact that I have placed you on title to these assets.” Upon the death of the surviving parent, the child that holds title alleges that Mom or Dad put them on title because they wanted them (and only them) to receive those assets.

A fight ensues and thousands of dollars in legal fees are incurred before it is resolved by agreement or a court order.

Another scenario is where a child is added to certain property alongside one or both parents for estate planning purposes. Then that child goes through a divorce. If the transfer to the child was not formally documented with evidence that the child would not receive beneficial ownership until the other holders pass away, the ex-spouse may assert that they have an interest in that property, too. That is, the child on title could face a claim for division of family property that includes a sizeable interest in the property held jointly, even if the intent of the parent was merely to avoid probate fees upon their death.

Placing a child onto title as a joint owner could actually cause an increase in taxes because it could cause the loss of one of the exemptions that would normally apply, such as the principle residence exemption. As well, the child who is on title for estate planning purposes might become subject to trust reporting requirements.

There are other risks. If the child gets into trouble with debt, you might have to deal with a registered interest on title to your house or other property. If you change your mind about the arrangement, you cannot reverse it easily unless the child co-operates. If you want to sell or refinance, your child must also sign off.

In short, if you are thinking about adding a child to title to your property as a joint title holder because you heard it can avoid taxes or probate fees, you may want to think twice and seek estate planning advice before doing so.

This article is provided for general informational purposes only and does not constitute legal or other professional advice.