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Tuesday, January 19, 2016

Pros and cons of adding kids to the title similar to the pros and cons of catching the flu

This post is going to be about putting the kids' names on the title to a parent's home. I seem to talk about this a lot these days. This is, I'm sure, the topic that is raised more often than any other on this blog, but I'll keep answering it as long as readers keep asking it. In my view, the more people who actually get the facts on this issue, the better.

"My mother is going through the dilemma as to whether she should add mine and my 2 other siblings name on title. We live in Vancouver and our house is worth around 1 million now. I was just wondering if you could list the pro's and the con's of adding your children's names to a title?"

Yes I can, but I warn you that I'm not neutral on the subject. To me, this is like asking the pros and cons of catching the flu. That's how little upside there really is. While some might think that catching the flu is okay because you get a day off work, is it really a bonus if the price tag for that day is being sick, achey, and running a temperature?

Pros:
1, If done correctly, adding the kids' names to the title might prevent the house from having to go through the probate process, thus reducing the fee paid to the court for probate.

Cons:
1. Keeping the house out of probate does not mean that other assets won't require probate. There will still be fees on accounts, investments, vehicles, etc.

2. The risk to your mother of losing the house during her lifetime is HUGE if she has three other people on the title. Any one of you could cause her to lose her home if you were to get divorced or be sued. After all, if your name is on it, you own it just as much as she does and nobody involved in a lawsuit will care who "really" owns it. While I understand that none of you would do anything intentionally that would hurt your mother, you may not have control over whether you are sued or your spouse leaves you.

3. Having three people inherit one house never, ever, works. Ever. It has never worked in the history of the world and yet people keep thinking it's a good idea. If you want examples of how badly that can really go, read through some of the things readers have posted on this blog about what happened in their families after Mom or Dad left all the kids the house or cottage. Some examples: no agreement on when or if to sell; one child moves his/her family in and won't move out; fights over the contents; one wants to renovate or repair and others don't; arguments over who pays the bills.

4. You will probably create a tax liability that currently does not exist. When your Mom passes away, if she owns the house by herself, she will not have to pay capital gains tax on the house because it is her principal residence. However, if any or all of you kids own your own home, your mother's home is not your principal residence, and your portion of the transfer of the house will be taxable. So theoretically, a house that currently transfer tax-free would end up being only one quarter tax-free, and you lot would be out that much money. Have you looked into whether the tax on 3/4 of a house that is now worth a million would be less than the amount payable in probate fees?

5. Your mother might one day want to sell the home to fund her care in a long-term care facility or a smaller place to live. Any of you kids can stall that process by refusing to sell, if your names are on the property. Don't dismiss this idea by thinking it can't happen in your family. All families think that right up to the day they end up in court trying to force a sale.

As I said, I'm not neutral on this. I'm very thankful that you and your family are looking into the idea before going ahead with it.


6 comments:

  1. I live in BC, Vancouver. Own a condo (mortgage paid off) and since I got it before I got married some 10 years ago, my wife is not on the title. I am reading about these probate fees etc. and wanted to add her, but not sure what's the process. Do I need to retain a lawyer for this or are there some forms to fill out at some government agency etc.?

    ReplyDelete
  2. Hello. Have read through many posts and comments but not sure this has been covered I cant find it. My parents got divorced a few years ago. During the divorce my mothers left %50 of the property to me and my brother %25 each I believe we are tenants-in-common. This was all done by a lawyer. The house is now up for sale. It is my fathers principal residence and was mine up until Dec 2016. we were added on the title 2 years ago. the FMV of the home has not changed since then. Would I be triggering any kind of capital gains when this property sells

    ReplyDelete
    Replies
    1. If the value hasn't changed, there is no gain or loss, so no there should be no tax consequences.

      Lynne

      Delete
  3. I am currently in the process of buying a little condo for my daughter to live in while she attends college in another city. I had been planning to purchase the condo as joint tenancy with my daughter - she is 19 and has plans to stay in the new city and live in the condo long term. I thought that would be the best way as I would like her to inherit the condo, not have to sell, pass to her directly upon my death and not have it go thru probate. The more I read, the less simple that sounds! I have my own principle residence and I expect the new condo will appreciate a lot as it's in a booming real estate area so potential for capital gains. It seems I have 3 options - joint tenancy, sole owner or give my daughter the money and she purchases as sole owner. Any thoughts for me? Thanks!

    ReplyDelete
  4. My question is if I sell my principal residence to my child can I hold the mortgage with a 0 payment and on my death the mortgage is null & void. Would she have to pay any capital gains or probate on this property if she purchases it.

    ReplyDelete
    Replies
    1. As for the bit about holding the mortgage, I couldn't say - you'll have to work that out with the bank. Mortgages do not become "null and void". It would be great if they did. However, they are paid out.

      I suspect you may be talking about lending the money yourself, but you didn't say so and I am not about to start guessing.

      Purchasers do not pay capital gains tax; sellers do. However if you sell your principal residence, either to your child or to a complete stranger, you do not have to pay capital gains tax.

      If she owns the home when you pass away then no, she would not pay probate fees on it.

      Lynne

      Delete

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