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The-Last-Word

The pitfalls of putting adult children on property titles

Trying to avoid probate fees

Is it a good idea to hold bank accounts and property in joint names with your intended beneficiaries to avoid probate fees and expenses?

My last column explained how the probate process and associated legal fees can be avoided if joint ownership deals with all assets that would have required an estate grant. I ended the column with a caution that one should consider the potentially bad consequences of taking that step.

Brenda is a 78-year-old widow with two children, Jessica and Dave.

Jessica is a divorced mother of Brenda’s grandchild, Stacey, who has a wonderfully close relationship with Brenda. Jessica has been cohabiting with a new partner, Steve, for a number of years.

Dave goes in and out of relationships and has no children.

Brenda lives on a modest pension in a small condo worth $450,000. She has a TFSA worth $65,000 and a savings account that fluctuates but is usually above $50,000. She wants to make things as easy as possible for Dave and Jessica. She has decluttered her belongings, discussed with her children who will get anything of value, jewelry and furnishings, and has pre-planned and pre-paid for her funeral.

She read my column about how the time-consuming and expensive process of probate can be avoided and added Jessica and Dave as joint-owners of her condo and savings account. She also named them as beneficiaries of her TFSA, which is how that asset can go to them without probate as well. She threw my caution about joint ownership to the wind.

Dave makes a good living in the oil industry but overextends himself with an expensive lifestyle, driving an expensive jacked up pick-up truck and always has the latest quad and snowmobile. His financial world collapses when a quadding injury disables him from working. He doesn’t have disability insurance. Making matters worse, his quadding passenger is seriously hurt and pursues a legal claim because of Dave’s carelessness.

Intending to reimburse the account as soon as he recovers, Dave starts paying rent and making his high credit payments out of the joint savings account. Brenda gets the shock of her life when her son comes clean about draining her savings account. That’s when she also learns about the lawsuit which, if successful, will put her home in jeopardy because Dave is on title and has no other assets to pay a judgment.

Dave offers to remove his name from the title to protect the home from circling creditors, but he learns that property transfers made with that goal are unlawful and can be reversed.

Then there’s Jessica. She and her partner Steve have been living large, expecting to share in the proceeds from the sale of Brenda’s home after she passes away. But their relationship sours and they break up. Their separation would be clean and easy if not for Steve’s claim against Jessica’s joint ownership interest in Brenda’s home. Steve’s lawyer gets a court order freezing Jessica’s assets immediately upon their separation.

Yikes!

What about the wonderful scenario of Brenda finding love with someone she meets at her weekly bridge club. The two lovebirds decide to live their lives to the fullest, with plans to travel the world and indulge themselves with life’s expensive pleasures. To do so, Brenda needs to access equity in her home. The only way she can get a reverse mortgage is to get her children off title.

Jessica and Dave are concerned their mom, who has become more and more forgetful, has fallen for a shyster who is only after her money. They refuse to transfer title. Their well-meaning refusal causes a rift in their relationship with Brenda.

How awful!

Finally, consider a scenario where Brenda suffers cognitive decline and then Jessica dies of cancer. Brenda is unable to change things on Jessica’s death because she no longer has the cognitive capacity to do so.

The problem is when Brenda dies, everything will pass to her son with nothing for Brenda’s granddaughter Stacey.

Probate fees on a $450,000 home and $50,000 bank account are only $6,450. Adding legal fees might bring the expense to $10,000 to $15,000.

These nightmare scenarios, and many others I could come up with, make probate sound like a walk in the park.

And then there’s tax implications. One of the most significant tax breaks we get is the capital gains exemption for our principal residence. When you sell your home, you don’t have to pay tax on what is often a significant increase in value.

That exemption is not enjoyed by a joint owner who does not reside in the home with you. Trying to save a few thousand dollars of probate expense might result in tens of thousands of dollars of tax liability.

I recommend you invest the time and fees to consult with both an estate planning lawyer and an accountant with estate tax expertise so you can make fully informed and wise choices.

I do not provide estate planning services and I am not an accountant, but I will be happy to refer you.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.



More The Last Word articles

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About the Author

Lawyer Paul Hergott began writing as a columnist in January 2007. 

Achieving Justice, based on Paul’s personal injury practice at the time, focused on injury claims and road safety.  It was published weekly for 13½ years until July 2020, when his busy legal practice no longer left time for writing.

Paul was able to pick up writing again in January 2024. After transitioning his practice to estate administration and management.

Paul’s intention is to write primarily about end of life and estate related matters, but he is very easily distracted by other topics.

You are encouraged to contact Paul directly at [email protected] with legal questions and issues you would like him to write about.



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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