Thinking about adding one of your adult children on title to your home?
Maybe you want to make things easier for your kids when you pass, or avoid probate? Putting adult children on title to your home used to be a common estate planning technique. But now, with changes to tax rules, the introduction of new money-laundering and fraud prevention steps, and a decade of bitter litigation behind us, this might not be the great solution it used to be.
It’s my job as a BC Notary to help you decide if adding another person on title is going to do what you think it will.
Let’s set the scene
Let me tell you some stories about some of the problems you might encounter. You might decide that these issues don’t apply to you. If you still want to proceed, just let us know and we’ll get your file started.
Here’s the typical scenario:
You are in your 70’s or 80’s and thinking about making things easier for your kids when you die. You’ve heard that people often add their kids on title to their property. You think this makes it easier for them to deal with your estate when you have died. Something to do with helping them avoid probate. Your parents might even have done this with you.
Now, you’re not really sure what probate is. You think it’s probably bad, and you feel like it might be really expensive. Here’s a short article you can read that explains what probate is. It might not be quite as bad as you thought!
Let’s imagine you have two children, Mary, and Bob, and they are both in their 50s. Mary is single and doesn’t have any kids. She has a good job but has never really been very stable, and you’re secretly a bit worried about her. You only get to see her every few months because she’s always traveling or out with her friends. Bob is married, with two kids. You are very proud of him, and you get to spend a lot of time with Bob and his kids.
So you are thinking about adding Bob on the title to your home.
Now here come some of the challenges with this plan:
How divorce affects title
What if Bob’s marriage breaks up? Divorce can stir up some serious drama. Bob’s wife could potentially make a claim against this property if his name is on it, as part of their distribution of assets. Her lawyer could put a charge on the title to your home. That could make it impossible for you to sell it without paying her off.
Will she succeed in her claim? Maybe, maybe not. But you will now need to deal with that claim, and that will cost you time and money.
Creditors can come after title to your property
Now what if Bob runs into financial trouble? Suddenly, creditors could be eyeing your wonderful home as a way to settle his debts. They could even force you to sell your home to pay them off.
Taxes… so many taxes!
Now, let’s talk taxes. If Bob isn’t living with you full-time, he might face some capital gains when it’s time to sell. It’s important that he talk with an accountant. His accountant can work out what kind of tax hit that would be for him, so he can prepare for that.
There are also other taxes that also need to be thought about, such as GST, property transfer tax, non-residency taxes, and property taxes. You might be exempt from some of these, but exemptions are not automatic.
Decision-making
Next is decision-making. Right now, you are the boss, and only you.
If Bob is on title with you, and you decide you want to sell your home, Bob has to participate in that sale. He has to agree to the price you want, and he has to sign all of the legal transfer papers.
What if Bob doesn’t want you to sell his inheritance out from under him? How will Bob’s wife react to this? Especially if she has spent the sales proceeds already in her mind.
What happens when you die?
Here’s a real-life client scenario: Martha added her daughter to the title of her condo with the best intentions. But when Martha passed away, things got messy. Her other kids felt left out, and there was a lot of confusion about who got what. The daughter who was on title to the property with Martha decided she should keep the property herself, and her siblings were left out. They had no real way to challenge anything.
When you are gone, if the paperwork isn’t done right, your kids will end up in a “he said, she said” scenario.
You might think Bob will be good to his sister Mary, but what happens when Bob’s horrible wife decides they should keep it in return for all the difficulties you caused Bob?
If you don’t set this transfer up properly, with the right kind of documentation setting out how things are to be dealt with on your death, Bob might just keep the entire property all to himself.
Who pays the bills?
Now let’s think about shared financial responsibilities. Bob might promise to chip in for property taxes and repairs, but what if he forgets or can’t afford it? Suddenly, you’re stuck with the bill, and it’s not exactly pocket change.
Trust or no trust?
Now, let’s talk about how the ownership of the property should be structured. Are you and Bob going to be “true joint tenants”, or is he holding the property in trust for someone else? If you mean Bob to share the property with Mary after you have died, that’s a completely different scenario to just letting Bob have the property all by himself when you have passed away.
We need to put paperwork together that clearly shows your intentions so no one can argue about your wishes after you die.
Probate for other assets
And guess what? Adding Bob to the title might not even save you from probate. Your other assets could still require probate, so this might not be exactly the magic solution you hoped for.
If your goal is to avoid probate, you need to make sure you are thinking about all of your assets, not just your home.
Other documents
Now, onto the legal stuff. It’s crucial that both you and Bob have Powers of Attorney and Wills in place. The Land Title Office won’t allow you to sign for each other without a Power of Attorney, even though you are related, and you are both on title.
If you don’t have a Power of Attorney, and you have a stroke, Bob will need a court order to deal with your property.
And finally, consider drafting a co-ownership agreement. Think of this as a roadmap for your property journey – it sets out all the rights and responsibilities, so there’s no room for confusion or disagreement down the line.
This is a really important document. You and Bob know what your agreements are, but no one else does. If you get sick or die, this document will help outsiders know what your intentions were and how the property should be dealt with when you aren’t able to speak for yourself.
In Conclusion
Phew, that was a lot to unpack, but I hope you’re feeling more informed and empowered to make a really well-informed decision.
Just remember, when in doubt, seek advice from a BC Notary. We’re here to help you navigate the twists and turns of property ownership, one friendly chat at a time. Happy trails!
(Names have been changed throughout this article for privacy purposes.)