Some clients may have heard that adding children to a home title can avoid probate fees, make the estate process simpler and give the children the right of survivorship. However, “there are some definite misconceptions and some significant risks in doing it that way,” says David Christianson, a senior wealth advisor and portfolio manager at National Bank Financial Wealth Management in Winnipeg.

The home may be taxed as part of the estate if the children aren’t the true owners. There is the risk that the home could be lost to a child’s creditors. The move could also lead to an unequal inheritance between the children.

In Ontario, the probate fees are only 1.5% for the value of assets above $50,000. Kate Wright, a co-managing partner and practice lead of wills and estates at Mann Lawyers in Ottawa, asks clients to weigh the risks and benefits of adding their kids to a home title.

“Proceed with extreme caution,” Wright said. “Probate avoidance is not the be all and end all. It’s only one factor and it shouldn’t be driving the bus of your planning.”

Wright’s clients often see adding a name to a title as a simple move, but when she explains that the client will need tax, family law and financial advice, the clients usually reconsider.

Kim G. C. Moody, founder of Moodys Tax and Moodys Private Client in Calgary, said he tries to understand a client’s objective and where the client got their information before telling them that they’re misinformed.

“It usually results in some sort of bursting of a balloon,” Moody said. “There’s a level of sensitivity and empathy that’s required in order to truly understand what their objectives are.”

Taxes and beneficial ownership

If a child is added to a property’s title, it must be clear if half the home is being gifted to the child, or it’s simply a matter of convenience in estate planning. If it’s a gift, the client will need to report the property’s partial sale to the Canada Revenue Agency and may be liable to pay capital gains tax if the home does not qualify as a principal residence, Christianson said.

The process must be well documented as siblings may challenge ownership when the parent dies. The client needs to meet with a lawyer in the absence of their children to ensure they’re not under undue influence, Christianson added.

Whether the home will be included in an estate after a transfer of legal title depends on whether there has been an intended transfer of beneficial ownership when the title was changed, Moody said. He recommends clients seek separate legal advice on this matter.

For example, if the parents continue to pay the mortgage or declare all the rental income on their tax slips after the title has changed, it may indicate that the child didn’t have beneficial ownership, Moody added. And when the client notifies the mortgage lender of the ownership change, the financial institution may call the mortgage.

Exposure to a child’s creditors or divorce

Adding a child’s name to a home title could expose the parents to the child’s creditors or divorce claims.

If a grandparent wanted to add a grandchild to a home title for estate planning purposes and the grandchild is found at fault in a car accident, the house could be drawn into litigation as an asset, Moody said.

Whether a child’s interest in the home will be exposed in a divorce claim for property equalization depends on the facts of each case, Wright said. If it was a gift before the marriage, it can’t be excluded, but it might be excluded if the gift was made during the marriage, for example. This process will require a disclosure by the parents, who might not want to get involved.

“I get clients who say, ‘My neighbour added their kid, I think this would be a good idea for me,’” Wright added. “[But] what is right for somebody else isn’t necessarily going to be right for you.”

An unequal inheritance

Leaving a house to one child and other assets to the siblings could result in an unequal inheritance. While the value of the assets may be equal at the time the will was drawn up, the value of a home will increase at a different pace than an investment portfolio or life insurance policy will, Christianson said.

“It’s pretty risky to have different elements to work out. You can create some equalization clauses in the will, but that opens the estate to all kinds of disagreements and potentially litigation,” Christianson added. “When part of the family is suing the other part of the family [it] never feels like it’s a win.”

But fair doesn’t always mean equal. For example, it may be fair for parents to will a family farm to the child who is willing to take it over with the non-farming siblings inheriting other assets, Moody said.

In any case, the family should meet to ensure that all the siblings are on the same page and know what their parents intend to do, Christianson said. This is best done on neutral ground, such as an advisor’s office, with the advisor and lawyer present.

Jeopardizing options

Adding a child to a home title could jeopardize future financial options for the parents and the child.

If the client needs to mortgage or sell the house to fund their retirement, they will need to seek their child’s consent to do so as a co-owner, Wright said. “Everyone will say, ‘My kids will go along with it,’ until they don’t.”

In addition, it could jeopardize the child’s first-time homebuyer benefits such as opening a first-home savings account or claiming the first-time homebuyer’s tax credit, Wright continued. The parents and the children will need to get separate legal, tax and financial advice.