Children on title of parent's home -

This applies in the US or Canada.

QUESTION:

My father is a widower and added my sister and I on title to his house which is his principle residence. He did this in 2003 and informed us of it after the fact. He did this to save on the future probate fees and no money exchanged hands. His house has considerably increased in value in 5 years. If my sister and I wanted our names taken off the title now, will we be subject to capital gains on our 2/3 portion from 2003 to 2008?

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david ingram replies:

If your name was only on the title for probate purposes and neither you nor your sister has listed 'your' shares of the house as an asset or used it as leverage to borrow money or continue other financing, AND your father has continued to pay all expenses, etc involving the house, then I have no problem accepting that you were just holding the share in trust for your father.

In that case, there should not be any tax liability if you were to take your names off the title.

However, if either of you are married, your spouses may have other ideas and try and claim the putative value of 'your' share of the house in a future divorce action and claim that you took your names off the title to circumvent BC's Family Relations Act.

When anyone wants to do this, they should have a side agreement that accepts that the transfer was done for PROBATE purposes and that the children acknowledge that until the parent's demise, the child will not make any claims against the house, will not pledge their interest as security, and return the property to the parent upon request.  At the same time, any spouse of the child should sign the same document and acknowledge that they have no claim against the property while the parent is alive.

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david ingram replies:

BC does have Probate fees though and avoiding probate fees can be worth significant dollars
The BC rates are as follows:

2  (1)  In addition to any fees payable under the Rules of Court to commence a proceeding to obtain the issue of a grant or a resealing and to any fees payable under the Rules of Court to file documents within that proceeding, a fee determined in accordance with this section must be paid to the government, before the issue of any grant or before any resealing, as the case may be, on behalf of the estate of a deceased by the personal representative of the deceased but is payable by that personal representative in his, her or its representative capacity only.

(2)  No fee is payable under this Act

(a) on a grant de bonis non, a cessate grant or a double probate, or

(b) if the value of the estate does not exceed $25 000.

(3)  If the value of the estate exceeds $25 000, whether disclosed to the court before or after the issue of the grant or before or after the resealing, as the case may be, the amount of fee payable is

(a) $6 for every $1 000 or part of $1 000 by which the value of the estate exceeds $25 000 but is not more than $50 000, plus

(b) $14 for every $1 000 or part of $1 000 by which the value of the estate exceeds $50 000.

(4)  If, after the issue of any grant or after any resealing, the personal representative learns of the existence of an asset of the deceased that was not disclosed in the Statement of Assets, Liabilities and Distribution exhibited to the affidavit leading to the grant or to the resealing, determines that the value attributed to an asset in that statement must be revised or determines that an asset was otherwise not properly disclosed, the personal representative must disclose to the court the existence and value of that asset and must pay to the government the difference between the fee paid before the issue of the grant or before the resealing and any greater fee that would have been payable under subsections (1) to (3) had the asset been disclosed or appropriately valued in the original Statement of Assets, Liabilities and Distribution.
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If her house was the only thing in the estate and worth $650,000 the probate fees in BC would be worth $8.550.  If the house was in joint tenancy with right of survivorship, there would be no probate fees and no need to go to the time and effort of probating the will.

If the house is $1,050,000, you save $14,050.00

The big savings is in the paperwork after death.  Most of it goes away if you do not need to probate a will.

The rules are similar  for most provinces and states and there is no US Federal Estate tax now on amounts under $2,000,000 for 2007 and 2008 and $3,500,000 for 2009.  Individual states do have estate tax however but the rates change from state to state.  You can see the Ohio taxes (as an example) at http://en.wikipedia.org/wiki/Ohio_estate_tax

Because the family house falls into a taxable estate, the joint tenancy rule in Canada does not work the same in the USA when there is a taxable estate but can still save a lot of paperwork.

The original Q & A follows

 

My question is: Canadian-specific

QUESTION: I am an only child. My elderly parents own a home which will some
day come to me. Is there a tax advantage to having the home put in all three
of our names now and as any one of us passes on the house is already in the
survivors names. If yes what is the process to get this done.
Thanks

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david ingram replies:

If you put the home into joint tenancy with right of survivorship, the home
does not pass through probate upon any of the member's death.  With the
value of some homes today, that can be a significant saving in probate fees
in some provinces and states.

However, after the transfer form mom and dad as "joint tenants with right of
survivorship" to mom, dad and you as  "joint tenants with right of
survivorship", the property is bound to go up in value and theoretically, if
it is "yours", you would owe capital gains tax on your share when eventually
sold.

The solution is to have a side agreement which states that your name is on
title for estate and probate purposes and that you are holding what ever
share (there could be three or four kids along with mom and dad) you have in
trust for them and that you will not pledge it as security, will not list it
as an asset and will not make any effort to partition the property and have
it registered as tenants in common.

Many lawyers are not happy with this arrangement but I have seen it done
many, many times and never challenged by the CRA or IRS. 

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