Many seniors ask me whether they should put their children on title to their home so they can avoid probate fees when they die. Probate fees are essentially a tax the government gets paid from the estate once an estate trustee applies for a certificate to appointment. It varies from province to province . In Ontario the fee is 1.5% of the value of the estate over $50,000.00. By putting your son or daughter on title as joint owner, the estate can avoid probate fees because of something called the right of survivorship. Basically the right of survivorship means that upon your death, title to the property automatically vests in the surviving joint owner and does not form part of the “estate” so there’s no probate fees on the value of the property.
I always advise clients against putting their kids on title because the risks of doing so can outweigh the potential savings of the probate fees. Below I’ve listed four reasons why I think putting your kids on title is a bad idea.
1) Capital gains
When you transfer part of your home to your child there is a deemed disposition at the fair market value. This may result in capital gains tax for you if the value of your home has increased since you bought it. There is an exemption if it is your principal residence. But for most adult children, the home will not be their principal residence. This means that they will likely incur a capital gain on their half of the property when the home is sold. In many cases the capital gains tax will be higher than the probate fees that you were seeking to avoid.
2) Claims by creditors and lawsuits
If your son or daughter has financial problems then creditors could place a lien on your home to satisfy the debt. Similarly, if your child gets sued and a judgment is obtained against him, then the judgement creditors could also place a lien on your home to satisfy the judgement.
Although the creditors would only be able to come after your child for his or her half interest in the home, they could issue a Writ of Seizure and Sale and have the Sheriff sell the home to satisfy the debt. You would then get half of the net proceeds, or alternatively you would have to buy out the creditors to keep your home
3) Divorce
If your child is married and you transfer an interest in your home to him or her, then it is possible that his or her spouse will have a claim against your child’s half of the home if they get divorced. In such a case, you may have to buy out the spouse’s entitlement to part of the home, or worse, they could force a sale of the home
4) Loss of control
When you add someone else to the title of your home, then you lose control over the property because you will need the consent of the joint owner to do anything with it. So if you want to re-finance, for example, your child will have to sign off on the mortgage documents. Similarly, if you wish to sell your home, you will need their agreement.
If you thinking of putting your kids on title of your home to avoid probate taxes, then you should re-consider. There are other ways of avoiding probate that are less risky.