After 47 years as a lawyer, it still amazes me how often I’ve been asked whether or not it’s wise to share homeownership or ownership of other assets with other people. My answer is always that it depends, but that generally, it’s not advisable.
When I’ve been asked this question, I’ve asked one back. Why would anyone want to lose full or partial ownership or control of one’s assets? I’ve heard numerous responses. Amongst them, saving money (by avoiding estate administration tax, once called probate), making things simple for loved ones, and generosity to one’s children.
Let me tell you why these are not necessarily good reasons.
As of January 1st, 2020 estate administration tax in Ontario is calculated at 1.5% of the value of the estate over $250.00. This tax is not payable unless an application for estate administration by the estate trustee (Executor) is made to the Superior Court.
Commonly it is thought this tax can be avoided by making their children joint owners of their home or other assets. Therefore, perhaps this asset might not be taxable.
Not so fast!
Just because ownership is transferred into joint ownership the value of the asset may form part of the estate. Spouses can transfer assets between themselves without paying probate on the jointly held asset. They are presumed to make a gift to the other spouse.
This is not necessarily so by transferring an asset jointly to a child. The law of resulting trust says that the child is holding their interest in this property “in trust” for the parent. The intention of the parent at the time of transfer is most important! It cannot simply be to avoid estate administration tax (probate fees).
The land registrar might transfer title to this property without requiring an application for estate administration, but this doesn’t mean you’ve successfully avoided paying estate administration tax.
An individual rarely owns one single “asset”. If you own a home and other investments, the investment holders will likely require probate before they will liquidate. This means that the value of all assets must be included for probate tax purposes.
However, if all of your assets are owned jointly, it might be possible to avoid paying probate tax.
Why do you want to blog? This is http://djpaulkom.tv/dj-paul-presents-da-mafia-6ixs-new-album-watch-what-u-wish/ free tadalafil sample biggie. It is very disturbing to know that a person is suffering from sildenafil generic uk ED. Hormonal levitra 60 mg issues, for instance, a low testosterone level. Best Ways order cialis http://djpaulkom.tv/video-watch-da-mafia-6ixs-beacon-n-blender-official-video/ To Coach A Team Baseball: Walk It Off. In for a penny, in for a pound – and this comes with risks. That’s for another article.
Joint ownership has consequences for the here and now as well. By transferring ownership of your home you partially lose a tax-free capital gain exemption when you sell the home.
Additionally, if your child does not live in the home, they also have tax consequences. If your child is married and resides with their spouse at this property there are matrimonial considerations.
Probate fees might be less than the capital gains tax exemption lost by the parent. Don’t forget that the child might have to pay capital gains tax on sale if they do not live in the home.
If there is a mortgage on the property, Ontario land transfer tax might also have to be paid on transfer into joint ownership.
If the item being transferred is a cottage or income-producing asset, you, not your child, would pay capital gains tax in the same year the property is transferred. This could be substantial and must be paid in the year of transfer.
When considering the transfer of ownership be it whole or partial, it might be helpful to consider it as not simply a financial transaction but as a loss of control. Owners share rights to property including the right to sell, the right to mortgage, and the right to transfer.
If your married child is a joint owner and lives in the home with their spouse and they die before you, the joint ownership of the property is lost. The deceased child’s ownership falls into their own estate. This is part of family law and can be found in Section 26(1) of the Family Law Act.
Sometimes parents wish to assist with their children’s overall financial situation. Parents need to consider their own current and future financial needs and exposure. Should one’s child be indebted to anyone, for example, the government for unpaid taxes, the gift might be lost to a creditor. This is true also of potential future claims. Once joint ownership is finalized, financial futures are linked, for better and for worse.
In your generosity to one child you might fail to consider your other children. This child might claim sole ownership to the exclusion of their siblings. Many parents try to treat their children equally. By transferring an asset to only one child jointly with the parent, the asset may no longer form part of the parent’s estate. The children are therefore treated unequally.
This is but a fraction of what could be said about the implications of sharing ownership of assets with one’s children. Everyone’s situation and circumstances are different. I would be happy to have a conversation about your unique family situation.
This article is not intended to be relied upon as legal advice but only to give the reader an overview of the law in Ontario applicable to powers of attorney for property and personal care. You need to consult your legal representative to determine the best procedure in your particular circumstances.
