Getting Real with Your Real Estate

By William R. Walters

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A home is typically an individual's or couple's most substantial asset. Of course, a home is more than a financial asset, especially if within it the generational drama of family life has played out. The numerous values embodied by a home mean that people will often have conflicting goals with regard to it as they age. They may wish to remain living in it for reasons of sentiment or identity, while recognizing that physical decline may prevent this; they may wish to minimize probate or transfer taxes arising on death, but do not wish to gift or sell the home before they die. Increasing numbers of people see the transfer of their property into joint tenancy with one or more of their children as a way to achieve many of these goals simultaneously. The apparent simplicity of this solution, however, masks potentially serious problems that other, equally effective planning options can avoid.

When a joint owner of a property dies, the property passes to the surviving owners directly. Neither probate fees nor property transfer taxes are paid. Although appealing, numerous potential problems can negate these benefits. During a parent’s lifetime, these may include:

Loss of control: all joint owners must agree if the property is to be sold or mortgaged;

Loss of access to equity: joint owners must agree to mortgage the property;

Conflict within a family: other children not on title may feel resentful or unfairly treated;

Increased risk: the property will be vulnerable to claims by a joint owner’s creditors or spouse in the event of separation or divorce.

After the death of a parent, one of the most serious problems is that the property may not pass to the child who was on title as a joint owner. Those children not on title may argue that the house should form part of the parent’s estate. When a parent puts an adult child on title as a joint tenant without receiving payment, a presumption arises that the property forms part of the parent’s estate. The child who received the property by way of survivorship must overturn this presumption. Failure to do so means the property will pass according to the terms of the parent’s will. Even if the child is successful in overturning the presumption, a good deal of time, energy and money likely will have been expended to achieve this result.

The risk of these problems may be minimized or eliminated entirely by alternatives to joint tenancy including:

A co-ownership agreement executed under seal. This solution minimizes the potential that siblings will be able to successfully challenge the transfer to their sibling, but does not fully address other issues such as control of the property, access to its equity, or the vulnerability of the property to creditors or a separating spouse of the child on title with their parent.

A principal residence trust. Almost all of the problems and risks of joint tenancy can be addressed through a trust, including those arising after the death of the parent, but at the cost of considerable expense and ongoing administrative requirements to maintain the trust.

Doing nothing and retaining the property solely in the parent’s name (or selling it). The property then passes according to the parent’s will and probate fees of roughly 1.4 per cent will have to be paid. Arguably, this fee is a relatively small charge for maintaining control of the property, retaining access to the equity, and minimizing sibling disputes both before and after the death of the parent. The parent’s will can be drafted to accomplish goals such as retention of the property within the family.

Whether or not to put a home into joint names with an adult child is not a straightforward decision. The financial merits of such an arrangement and the alternatives to it are usually quantifiable and, consequently, readily assessed. The decision is made complex, however, by the unquantifiable elements of life, such as the values, emotions and family dynamics of the parties involved. Whatever solution one chooses, it is important that the decision be informed by an awareness of the merits and risks from a legal perspective to avoid undesired or, at the very least, unexpected results.

This article is informational only. For advice on your specific situation, consult your legal advisor.




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