Many times over the years, my clients have asked me to add an adult child or children to their deed to avoid having to probate their house after they die.
If a person dies with property in their name alone, their estate will typically have to be probated. Probate is the process of having the Executor make an application to the court to be appointed to wind up a person’s estate. Once an Executor is appointed, the court will oversee their work to ensure that they are following proper procedure and maximizing the value of the estate. The probate process can take years, depending on the types of assets in the estate. The court also charges a tax on the value of the assets in the estate of roughly 1.6%.
For these reasons, some people wish to avoid having to probate their estate after they die. To avoid probating your property you can add a joint owner and hold title as joint tenants. This means that the last living person becomes the sole owner of the property, and the probate process is not triggered.
So, adding your child to the deed should be a great idea, right? The answer is: it depends. When I meet with a client, they tell me what their goals are, and my job is to advise them of the pros and cons of what they are asking me to do. Once I advise them, they instruct me. Until I advise them of how the law would treat their particular situation, they cannot give me informed instructions.
So here are the pros and cons of adding your child to your deed to avoid probate:
Pros:
- you should avoid the probate process for this piece of property. I say “should” because there are always exceptions, although not common. I say “this piece of property” because if you also co-own the family cottage with your brother as tenants in common, for example, your interest in the cottage will have to be probated. So, you may not completely avoid probate, but you should avoid having to probate the property you shared with your child. But as with most things in life, now we must consider the cons.
Cons:
- when you add your child to your deed you are giving them half of the equity in your property. You are also relinquishing control. If you want to sell or mortgage your property, you will need your child’s consent.
- if your child is in a car accident, for example, and becomes unable to manage their own affairs, they will need a Power of Attorney appointing someone to manage their affairs, including their interest in your home. If they do not have a Power of Attorney, you could be required to make an application to the court for guardianship for your child so that you could sell your home.
- if your child gets sick and has to declare bankruptcy, their Trustee may wish to use their equity in your home to satisfy their creditors.
- if your child divorces, there is a possibility that their spouse could ask for half of your child’s equity in your home.
- earlier this year, Canada Revenue Agency decided to add a reporting requirement for all people who were acting as trustees. The requirement was scrapped just before the reporting deadline, but if it went in place, it would have required anyone who was a joint owner with a parent to report to Canada Revenue Agency annually.
- there are currently rules that forbid a non- Canadian from acquiring property in certain communities in Canada, and non- residents of Nova Scotia can be required to pay an extra 5% tax on the tax assessed value of the property even if they are being gifted an interest in a property.
- if you die with a home in your name and you were living in the home as your primary residence, there is no income tax due on the increase in the value of your home. If your child owns their own home and you add them to your deed, when you die your child will be required to pay tax on the increase in the value of your home from the time they were added to your deed to the date of your death, because your home is not their primary residence. The capital gains tax could be far more than the costs of probating your estate.
After learning how the law applies to their particular situation, many of my clients decide not to add their child to their deed.
There are some instances where it makes sense. If you have an adult child living with you in the home as their primary residence, and you intend to will the home to them upon your death you avoid the capital gains issue. If you are very sick and know end of life is near, the risk of the cons I’ve listed becomes much less of a concern.
Ultimately, you know your wishes, your life situation and the players involved better than anyone. So, it is your decision as to whether you are willing to assume these risks to avoid probate.
Tracey Kennedy is a Partner at Kennedy Schofield Lutz Lawyers. This article is meant to offer basic legal information and should not be relied upon for legal opinion. You can contact Tracey or any of our lawyers at 902-826-9140 for advice on your specific matter.
