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When it comes to estate planning, people often become fixated on ensuring that their estate does not have to pay Estate Administration Tax (also known as “probate tax”1). This fixation is largely driven by the fact that if one’s estate is not subject to probate tax, there will be more money for the beneficiaries of the estate on distribution.

There are many clever estate planning strategies that eliminate, reduce, or at least defer an estate’s tax liability. One such strategy includes adding an adult child2 to the title of your home as a “joint tenant”. By operation of law in Ontario, when one joint tenant of a property dies, the surviving joint tenant inherits the home by “right of survivorship”. When a joint owner inherits a property by right of survivorship, the home does not form part of the deceased’s estate and consequently, the value of the home is not included in the value of the deceased’s estate and therefore, is not taken into consideration when calculating the amount of probate tax that needs to be paid.

This simple and cost-effective probate planning technique—adding a child to the title of your home—is therefore very attractive to persons who are turning their attention to their estate plans(who I will broadly refer to as “testators”). Depending on what assets comprise a given estate, a testator’s act of adding an adult child to the title of their home could even dispense with the need for probate altogether—no lawyers or limited involvement of lawyers, no waiting on the Court to grant probate, and little or no legal fees.

Although well-intentioned, a testator’s goal of evading probate tax by adding a child to the title of their home does not come without risks. In fact, taking this step is loaded with risks and the result could be financially disastrous—not only for the beneficiaries of an estate, but for the testators themselves during their lifetime. Without careful planning, a testator’s act of adding an adult child to the title of their home has the propensity to lead to the ironic result that the testator or the testator’s estate ends up paying much more in legal fees than the estate ever stood to save by not having to pay probate taxes.

The fact that adding a child to the title of your home for estate planning purposes is risky is not a novel legal insight. However, as we witness the largest transfer of wealth from one generation to the next in modern human history, I repeatedly encounter situations where testators did not fully consider the legal ramifications of adding their adult child to title. The situations that I deal with are not limited to the period after the testator dies. Rather, increasingly, the issues that I deal with take place during the testator’s lifetime.

So, what are the risks? What do you need to know before you add a child to the title of your home for estate planning purposes?

Risk No. 1: Once a child is added to title, removing their name could be costly

Adding your child to the title of your home is relatively straightforward. A transfer document is prepared by a real estate lawyer and is subsequently registered on title to your home.

But what happens when a testator changes their mind about their estate plans? One of the common issues that I deal with in my practice is addressing matters that arise when the testator changes their mind about their estate plans. Perhaps there was a falling out between the testator and their child such that the testator no longer wants their child to inherit their home by right of survivorship. Perhaps the testator has decided that they no longer want to own a home during their lifetime or can no longer afford a home and that they would prefer to sell their home and rent elsewhere instead.

What a testator needs to appreciate before adding a child to the title to their home is that after a child is added to title, the testator needs to obtain their child’s permission to do anything that impacts title because the child is now a co-owner. This includes removing the child’s name from title, obtaining a mortgage, and/or selling the property.  A testator cannot unilaterally remove a co-owner’s name from the title or sell the property without their co-owner’s consent. If a child who is a co-owner refuses to sign the necessary documentation to have their name removed from title or to sell the home—likely because they are disgruntled with the testator’s decision to change their estate plan—the testator’s only recourse is to commence litigation, and take the position that, at all material times, the child was holding their interest in the property in trust for the testator. This litigation is expensive and takes time to wind its way through the court.

Risk no. 2: The child may claim an ownership interest in the property during the testator’s lifetime

The addition of an adult child’s name to the title of a property as an estate planning tool is premised on the testator knowing that upon their death, their child will inherit their home by right of survivorship. But what happens when the child who is added to title claims that they have an interest in the testator’s home during the testator’s lifetime?

When a child who is added to title takes the position that they have an interest in the testator’s home during the testator’s lifetime, this often comes as a surprise to the testator: the testator only planned for their child to have an interest in their home after they died.

A child who is added to title to the testator’s home could very well take the position that when their name was added to title, they became a joint owner. It is open for the child to compel a sale of the home under the Partition Act3 and/or to argue that they are entitled to 50% of the sale proceeds upon a sale of the property, even if they did not contribute a penny towards the acquisition of the property.

If a testator finds themselves in a situation where their child is threatening a sale of the home under the Partition Act or is arguing that they will only agree to a sale of the property if they receive a portion of the sale proceeds, overcoming this hurdle often requires the assistance of lawyers and, if necessary, an order from the Court.

With respect to Risk No. 1 and Risk No.2, if litigation ensues, the testator will need to satisfy a court on a balance of probabilities that it was not their intention to give their child an interest in the property during their lifetime. Without proper planning—which at a bare minimum includes a testator carefully documenting their intention—proving that a testator did not intend to gift an interest in the property to their child is very difficult. This is especially so given that when the child is added to title, the testator is required to provide a statement on the transfer document registered on title that confirms whether consideration (i.e., money) passed between the parties on account of the transfer and, if not, why. In cases where a parent adds a child to title for estate planning purposes, the transfer is gratuitous in nature and the notation on the transfer document is “gift” or “transfer for natural love and affection”. As such, proving a gift was not intended can be quite difficult when the testator has made a statement in a legal document that specifically includes the word “gift” or implies that a gift was intended.

If litigated, a court could possibly determine that a gift was intended at the time the child was added to title. Therefore, it is possible that a court could determine that your child does have an interest in the property as opposed to holding their interest in the property in trust for the testator.

Risk no. 3: The child may have creditors who may try to compel a sale of your home

A testator’s decision to add their adult child to title as an estate plan is a matter that is private as between the testator, the child who is added to title, and the lawyer(s) who assisted with the estate plan and the real estate transaction. However, as far as everyone else is concerned, the adult child is simply a joint owner of the property.

Testators who are considering adding their child’s name to the title of their home should consider the fact that if their child gets into financial trouble, is assigned into bankruptcy, and/or if their child finds themselves as a party in a legal proceeding, the child’s creditors may turn their attention to the jointly owned property as a way to satisfy the child’s indebtedness to them. This, in turn, may result in the testator having to fend off their child’s creditors or judgment creditors4 who are trying to compel a sale of their home or having to satisfy the child’s indebtedness to prevent the creditors who are trying to compel a sale. Even if the testator’s child transfers their interest in the property back to the testator, the testator may be subjected to litigation that the transaction was intended to defeat the child’s creditors and that the transfer should be set aside pursuant to the Fraudulent Conveyances Act.

Risk no. 4: The child may become involved in a family law proceeding

If a testator adds a child to the title to their home and the child is married at the time they are added to title, there could be family law implications on the horizon.

If the testator’s child becomes separated or divorced from their spouse, their spouse could argue that the testator’s home amounts to a “matrimonial home” within the meaning of the Family Law Act. The child’s spouse could also contend that the child’s interest in the home vested in that child upon being added to title such that the value of the child’s 50% interest in the home should be taking into consideration when calculating the division of property as between the separating spouses. This, in turn, could put the testator in a difficult spot if the child’s spouse is unwilling to budge. The testator may need to commence a legal proceeding requesting an order from the court that the child’s interest in the home has not yet vested in the child. Alternatively, the testator may have to pay out a sum of money to prevent a scenario that might entail the child’s spouse seeking a sale of the testator’s home to satisfy the child’s family law obligations to their ex-spouse.

Risk no. 5: The child breaks a promise after the testator dies

A testator may add a child to the title to their home to avoid probate tax, but it may be that the testator has more than one child who they want to benefit from their estate. Often times, a home is the largest asset in an estate. As such, if one child were to receive the testator’s home outright to the exclusion of their siblings, there likely would be very little to divide among the remaining beneficiaries.

As noted above, when a testator adds a child to the title to their home as a joint tenant, the surviving joint tenant inherits the property by right of survivorship upon the testator’s death. When the testator has more than one child, the adult child who is added to title may make a promise to their parent that, upon the parent’s passing, that child will not take the position that they are the sole owner of the property but instead will take steps to sell the property and divide the sale proceeds equally between each of the testator’s children (i.e. their sibling(s)).

Issues often arise after the testator dies when the child who was added to title breaks their promise to the testator (or take the position that there was no promise at all) and adopts the position that it was the testator’s intention that they inherit the property outright to the exclusion of their siblings. If the surviving joint owner is not willing to arrive at a solution with their siblings, the only recourse available to the siblings is to commence a legal proceeding against their own sibling (who is now the sole owner of the property) and argue that their sibling is holding their interest in the property in trust for the estate. Joint property litigation is expensive, uncertain, and often tears families apart.

Takeaways

Adding a child to the title of your home is a popular estate planning technique aimed at eliminating or reducing an estate’s probate tax obligation. However, without proper planning, adding a child to the title of your home can be a costly mistake.

Each of the risks associated with adding a child to your home for estate planning purposes can be avoided, or at least mitigated, with the right advice and proper planning. While it is sometimes possible to litigate your way out of poor estate planning, doing so will cost you many thousands of dollars, which is much more than your estate ever stood to save by not having to pay probate tax.

If you are considering adding your child to title and are looking for advice on how to mitigate the risks of doing so, please reach out to our estate planning team at Siskinds LLP. If you have found yourself in a dispute with an adult child who you have added to title to your home for estate planning purposes and are in need of representation, please reach out to our estate litigation team at Siskinds LLP. We would be pleased to assist you.


1 Probate tax refers to a tax that is levied against an estate and that must be paid to the provincial government. The amount of probate tax that must be paid depends on the value of the deceased’s estate. Probate tax is only required when probate is necessary. Simply put, probate is a process whereby a party seeks the courts approval of the deceased’s Will or, if there is no Will, when a party seeks to be appointed as a estate trustee of the deceased’s estate. 

2 Or an intended beneficiary.

3 In Ontario, any joint owner of real property has the right to petition the court to compel a sale of the property.

4 Judgment creditors are creditors who have obtained judgment against another party requiring that party to pay a sum of money.

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