Legal Affairs: Dangers of joint ownership with your adult children

Trying to avoid probate fees may seem like a good idea, but joint ownership can create a whole host of problems.

Probate fees of approximately 1.4 per cent of the gross value of assets located within B.C. and passing through an estate in B.C. are payable to the provincial government at the time an estate is probated.

In an effort to avoid these fees, people often transfer assets into joint tenancy with their children.

Trying to avoid probate fees may seem like a good idea, but joint ownership can create a whole host of problems.

These problems are far more costly than 1.4 per cent tax.

Capital gains issues

The transfer of any property in Canada results in capital gains tax becoming payable on the increase in value since the property was acquired, (except in certain cases where exemptions are available).

There is an exemption for your principal residence and exemptions for active small businesses and family farms, but not for an investment property or a stock portfolio.

The transfer of an investment asset (for most adult children their parent’s property will be their ‘second’ property and thus considered an investment property) into joint names has the unintended tax consequence of triggering capital gains tax, which tax would be payable at the time your next return is due.

The probate fee only becomes payable on death, so transferring assets into joint names may in fact accelerate a payment of capital gains taxes in a far greater amount than the probate fees you were seeking to avoid, which may not have become payable for many years.

Claims by creditors and ex-spouses

Adding your children(s) name to asset(s) can have the unintended effect of making those assets subject to claims by creditors or ex-spouses of the children who were added to title.

Your asset becomes their asset and thus exposed to their misfortunes.

To try to protect against this a trust declaration can be done to show that the child has no beneficial interest in the asset which is partially in their name, but many people do not want to have to defend the ownership of their asset against the claim of a creditor of one of their children when their child’s name was added strictly for probate fee avoidance purposes.

Loss of principal residence exemption

A transfer of a 1/2 interest in your home to a child as a joint tenant will result in the loss, when your house is eventually sold, of your principal residence exemption on the 1/2 interest transferred.

Loss of control

Although a joint bank account or investment account only requires the signature of one party to deal with the assets or remove assets, the transfer or mortgaging of real estate requires the signature of all the registered owners.

If you add a registered owner to title to the property, they will need to sign any documentation relating to the subsequent sale or refinancing of it.

Some people do not wish to have to ask their children to be involved in those types of matters.