I am always surprised at the large number of people who put their homes in joint names with their adult children. If only they could see that transaction from a lawyer's perspective! When I ask people who advised them to do this, the majority reply that they did not use professional advice.
Before you decide to add your children's names to the title to your home, consider this: the child whose name you put on the title will own your house just as much as you do. It won't matter in most circumstances that it's "really" your home or that you're the one who paid for it. Think about what that could mean to you.
Risk #1: You put your son Frank on the title to your home. A few years later, Frank gets divorced. He and his wife divide their property between them as fairly as possible. She claims half the value of your house. Because Frank is the owner of the house too, she actually has a viable claim. Does Frank have enough assets to give his wife an amount equal to half the value of your house? If so, what will that do to Frank's financial picture? What happens if he doesn't have enough to pay her out? You risk at worst losing your home, and at best leaving Frank a couple of hundred thousand dollars poorer.
Risk #2: Frank opens a business of his own. He gets bank financing, and as is usually the case, he signs a personal guarantee for the loan. After a while he realizes that his business is not working out, and he closes up shop, owing the lender much more than his business is worth. The lender has the legal documentation that allows it to realize on Frank's personal assets, which includes your home. If Frank can't pay off his business debt, are you in a financial position to bail him out to save your home?
Risk #3: Frank is driving too fast and causes a motor vehicle accident in which someone is severely injured or killed. The settlement amount is in the millions of dollars. Frank has only $1,000,000 in public liability insurance. He is sued for the rest. It's going to take everything he owns, and more, to satisfy this judgment. Since he owns your house, it could well be seized and sold to help pay off the judgment.
Risk #4: You and your spouse decide that the old family home is too big and that it's time to downsize to a condo. You're ready to put the house on the market, but Frank won't sign the Transfer of Land. He believes that the housing market is too low right now and just might recover if you hang on for a year or two. You and your spouse won't be able to sell your home because the other owner, Frank, isn't co-operating.
I could go on, but I'm sure you get the point.
The bottom line is that it's risky to put names other than your spouse on the title to your home. It is usually one of the most significant assets on anyone's financial sheet and not something that most people can afford to have taken away.
So why do so many people take this risk? Usually it's because they have been advised to avoid probate fees by putting everything in joint names. It seems like a good idea as long as you're willing to avoid thinking about the potential downside. In my view, people take this step knowing too little about the process itself, and too little about how it actually applies to them.
For example, in Ontario and BC, probate fees are quite high and it's understandably tempting to find ways to reduce those fees. But why would anyone in Alberta, where probate fees cannot exceed $400 no matter how large the estate, want to reduce probate? Who would risk a $500,000 asset to save $400? It's often because they don't know the fees are that low and added names to the title without ever finding out how it applies to them.
If you are considering putting your child's name on the title to your home, you need to get professional advice that is geared towards you personally by someone who has all the facts about you, your children, your assets and your liabilities. This could be an estate planning lawyer or a certified financial planner. While it is certainly legitimate to consider this step as part of estate planning, make sure it's also kept within the larger context of your risk.
Before you decide to add your children's names to the title to your home, consider this: the child whose name you put on the title will own your house just as much as you do. It won't matter in most circumstances that it's "really" your home or that you're the one who paid for it. Think about what that could mean to you.
Risk #1: You put your son Frank on the title to your home. A few years later, Frank gets divorced. He and his wife divide their property between them as fairly as possible. She claims half the value of your house. Because Frank is the owner of the house too, she actually has a viable claim. Does Frank have enough assets to give his wife an amount equal to half the value of your house? If so, what will that do to Frank's financial picture? What happens if he doesn't have enough to pay her out? You risk at worst losing your home, and at best leaving Frank a couple of hundred thousand dollars poorer.
Risk #2: Frank opens a business of his own. He gets bank financing, and as is usually the case, he signs a personal guarantee for the loan. After a while he realizes that his business is not working out, and he closes up shop, owing the lender much more than his business is worth. The lender has the legal documentation that allows it to realize on Frank's personal assets, which includes your home. If Frank can't pay off his business debt, are you in a financial position to bail him out to save your home?
Risk #3: Frank is driving too fast and causes a motor vehicle accident in which someone is severely injured or killed. The settlement amount is in the millions of dollars. Frank has only $1,000,000 in public liability insurance. He is sued for the rest. It's going to take everything he owns, and more, to satisfy this judgment. Since he owns your house, it could well be seized and sold to help pay off the judgment.
Risk #4: You and your spouse decide that the old family home is too big and that it's time to downsize to a condo. You're ready to put the house on the market, but Frank won't sign the Transfer of Land. He believes that the housing market is too low right now and just might recover if you hang on for a year or two. You and your spouse won't be able to sell your home because the other owner, Frank, isn't co-operating.
I could go on, but I'm sure you get the point.
The bottom line is that it's risky to put names other than your spouse on the title to your home. It is usually one of the most significant assets on anyone's financial sheet and not something that most people can afford to have taken away.
So why do so many people take this risk? Usually it's because they have been advised to avoid probate fees by putting everything in joint names. It seems like a good idea as long as you're willing to avoid thinking about the potential downside. In my view, people take this step knowing too little about the process itself, and too little about how it actually applies to them.
For example, in Ontario and BC, probate fees are quite high and it's understandably tempting to find ways to reduce those fees. But why would anyone in Alberta, where probate fees cannot exceed $400 no matter how large the estate, want to reduce probate? Who would risk a $500,000 asset to save $400? It's often because they don't know the fees are that low and added names to the title without ever finding out how it applies to them.
If you are considering putting your child's name on the title to your home, you need to get professional advice that is geared towards you personally by someone who has all the facts about you, your children, your assets and your liabilities. This could be an estate planning lawyer or a certified financial planner. While it is certainly legitimate to consider this step as part of estate planning, make sure it's also kept within the larger context of your risk.
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