Thinking About Adding Your Children on Title to Avoid Probate Fees?

Estate Planning and Joint Ownership

By Apeksha Jain

Why do people consider adding their child on title as a joint tenant for their property?

Often, parents want to deal with the transfer of real property to their children while they are still alive, to try and make things easier for their children after they pass.

One way of doing so is to simply add one or more children to the legal title of the property. Most commonly, the parent and child are registered as joint tenants to the property, meaning they have an equal ownership share in the property, regardless of whether the child has made any financial contributions. Joint tenancy also grants a right of survivorship. The right of survivorship, in short, is when one joint tenant dies, and the property is automatically transferred into the remaining joint tenants’ names. 

What are the advantages and disadvantages?

One benefit to this option is that since the property is automatically transferred to the surviving joint tenant when the parent dies, the property passes outside of the parent's estate. This means the value of the property is excluded from the total value of the estate when calculating estate administration tax (also referred to as probate fees) and can result in significant tax savings to the Estate. That said, when there is a transfer from a parent to an adult child, the presumption of resulting trust comes into play. In simplified terms, the child is presumed to be holding the property “in trust” for the aging parent to facilitate the free and efficient management of the parent’s affairs. In other words, the property would be presumed to belong to the parent’s estate upon the death of the parent and it the value of the property would be included for the purposes of calculating probate fees.  

So, the property will not automatically be transferred without an expressed intention of the parent to only leave it to the child added as a joint tenant and probate fees will not be avoided.

Joint ownership between an adult child and parent can also be problematic in situations where there is more than one child or beneficiary, as the excluded child or beneficiary may wish to make a claim against the estate.

Further, there are tax implications for the adult child being added to title as it relates to first time home buyer’s tax credit or, if the adult child already owns property, there would be capital gains tax to consider. If the adult child has creditors, it could also open up the parent’s property to those creditors.

Complications can also arise in this type of transfer when a joint tenant child gets married, or enters into a common-law relationship. Since the child is now a registered, legal owner, of the property, the child's spouse is legally entitled to that child's proportionate share of the real property if they were to separate or go through divorce.

In sum, adding your child to title of your home could have benefits but it could also be a risky and expensive endeavor.

It is always best to consult a lawyer prior to making this important of a decision. Lawyers at Sorbara, Schumacher, McCann are very well versed in all areas regarding Real Estate, Estate Planning, and Tax. Please contact Apeksha Jain (ajain@sorbaralaw.com) for your estate planning needs.

 

* Please note that the information in this article is not intended as legal advice, but rather as a general overview on the subject. If you are seeking legal advice, please consult with a lawyer.