Why adding your kids to the house title will cost you

Q: My parents have both of their names on their house as joint tenants. My mother has been diagnosed with dementia and is now in long term care. My dad has trusteeship and guardianship for her. He wants to put his four daughters on the title of the house. How is this done and what is the procedure? Can this be done?

—ST

A: I’m sorry to hear about your mother’s condition, ST. Dementia is a horrible disease.

If your father is a joint tenant on the house and has power of attorney or property for your mother, he is in a position where he can do whatever he sees fit with the house. He has two of two “votes,” so to speak, with the asset. The power of attorney also governs her personally-held assets like her RRIF, TFSA, bank accounts, etc.

Unless your mother’s power of attorney includes limitations, which they rarely do, your father can make whatever financial and property decisions your mother otherwise could if she was of sound mind. The only general limitations are that an attorney cannot draft a new will for the grantor and cannot change a life insurance policy beneficiary.

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What you can do and what you should do are sometimes different in life and this situation is no different, ST.

The role of an attorney is to responsibly manage the grantor’s assets for their benefit – not for the benefit of their beneficiaries. I’m amazed at how often people fast forward to estate distribution while someone is still alive. Beneficiaries of a will have no rights until someone has died. And a power of attorney does not grant someone the power to distribute estate assets in advance of death.

In this case, I suspect your father may still live in the family home. Your father may someday require long-term care like your mother. He may want care in his home. Or he may need to pay costs well in excess of your mother’s costs as the demand for such care increases in the coming years as the Canadian population ages. This house may be needed to fund not only your mother’s care but also your father’s care in the future. On that basis, if I were your father, or your mother for that matter, I would be reluctant to pass this asset along to the next generation, ST.

It seems to be common practice for seniors to add the kids to ownership of a house. I’m not sure why.

If Mom and Dad own the house until they die, if they both aren’t otherwise living somewhere else – like in a long-term care facility – the house may qualify fully for the principal residence exemption. There may therefore be no income tax payable on their death. If you and your sisters are added on title and you own your own homes, the increase in value may not be tax-free and some capital gains tax may be payable.

So, adding your names potentially increases the family tax payable.

Adding your names also requires the assistance of a lawyer to change title on the property. So legal fees are payable now. When the second of your parents die and the house is sold, that will require legal fees a second time. If the property just stayed in your parents’ names the whole time, legal fees would only be payable once.

So, adding your names increases the legal fees payable.

If you or your sisters goes through a divorce, your spouse could make a claim that your share of the house should be included in your net family property for division. If you got in a car accident and were sued, your share could be included in your assets. If you died and left everything to your spouse, what if they demanded their share of your parents’ house while your father was still alive and living there?

So, adding your names increases the potential risk for family or creditor issues.

There are only two potential benefits to transfer title in this case, ST. The first is so that the house proceeds can be divvied up faster on the second of your parents’ deaths. But I suspect that benefit would be limited if you had to go into the house after they died, sort through everything, prepare it for sale, list it and wait for the closing either way.

The second benefit is that you may save money on probate fees depending on the province in which your parents live and where their house is located. Probate is the process of validating a will legally to allow distribution by the executor. Ontario has the highest probate fees in the country, with 1.5% payable on assets in excess of $50,000. Some provinces have flat probate fees, meaning little to no savings to transfer the house now.

So, if your parents live in Ontario and the house is worth $1,000,000, there are potentially $15,000 in probate fee savings to add you and your sisters on title. But I might argue there are more than $15,000 in potential costs I’ve raised above.

If your father is concerned about probate fees, managing his and your mother’s assets and an efficient disbursement of their estate, he could consider a joint partner trust. This is a type of trust for a couple over the age of 65. Only your parents could benefit from the assets held in the trust during their lives and on their deaths, the trust assets – like the house – could be efficiently distributed to you and your sisters. The trust would avoid probate, potentially include you and your sisters as trustees and would negate some of the other risks I mentioned of just adding you on title. The up-front cost may be a few thousand dollars, but may be a better way to help achieve your family goals.

That said, leaving things alone might be just fine too, ST.

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Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

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About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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