As an elderly adult or couple, have you been advised to add your adult child/children to the title of your primary residence as joint tenants for the purpose of avoiding probate fees? Although your intention is to have the homeownership flow easily to your children upon death, consider these serious consequences before going ahead with joint tenancy between yourself and your child.
1. Property transfer tax
Adding your child to the title means paying property tax at a potentially higher rate than probate fees (2% on any amount between $201K and $2M and 3% on any amount greater than $2M).
2. Deferred property tax
If you are 55 and older, and have been deferring your property tax, be prepared to pay them back in full before the transfer can be registered.
3. Existing mortgage on title
If an existing mortgage exists on the property, the lender must agree to the change and may even want to interview your child and review their financial situation. This could mean an interview with the bank. If the bank agrees, your child will automatically become equally responsible for this debt which could ultimately affect their credit rating.
4. Children’s future financial woes
If your child takes financial risks or is currently in financial trouble – take a pass. Your child’s debts can be attached to your property and may include CRA debts, bankruptcy, and future lawsuits.
5. Spousal relationship
Your child’s partner may have their own ideas about joint ownership and may decide to pressure your son or daughter into doing irrational things in order to ‘protect their inheritance’. Also, with divorces on the rise, there is a chance that your precious home could end up being considered an asset shared by your child’s ex-spouse. Talk about awkward!
6. Security for future health requirements If you anticipate long-term care needs, you may need to sell your home to cover those expenses. If so, ensure the joint owner is obliged to provide you with their share of the proceeds by having a signed agreement in place. 7. Losing control Yard getting too big to mow? Why not sell and downsize? Your new joint owner may have other plans and demand that their portion of the proceeds belongs to them prior to your death. 8. Capital gains If the joint property is not your child’s principal residence, a capital gains rate of 50% applies to the equity accumulated during the time they are on title. This is a much higher rate than the 1.4% BC probate fees. 9. Joint tenants with rights of survivorship (JTWROS) vs tenants in common Ensure you choose the correct version for your intention. JTWROS means that 100% of the ownership reverts to the surviving joint tenant upon the death of one owner. Tenants in common means the asset goes to the children of the joint tenant, as might be your natural objective. 10. Future incapacity Any children on title should have a valid Power of Attorney that can be registered in a BC Land Title Registry. If your adult child becomes incapacitated, it allows you to act on his/her behalf when you decide to sell your home.
These are just some of the reasons you should think twice about putting your child on the title. Always seek legal advice and tax advice and draft an agreement that outlines all intentions and responsibilities of each owner.
If you need further information or would like to speak to me about joint tenancy issues, please contact me at 604.940.8617 or book an appointment.