Why making your children joint owners of your home is (usually) a bad idea
Adding an adult child to the title of your home is usually a bad idea. Cornwall lawyer Michele Allinotte outlines the risks.
“Should I put my adult children on title to my home?” is a question that most professional advisors get often. Someone they know told them they should do that. In most cases, that person was definitely not a professional advisor, or not an advisor who is “in the know” about the problems with making adult children joint owners on your home (and other assets).
Here are a few potential issues:
- Your child will become an owner of the home. That is an asset that can be seized by creditors. That means if they get divorced, their spouse could claim the value of their share in your home as an asset to be divided under matrimonial property division. Also, we have seen children have gambling or addiction issues that the family did not know about until their loved one was in financial ruin. Your child could also be sued if they are involved in some sort of an accident, or as a result of the actions of their business. If so, your home is on the line.
- Unless the child also resides in the home, it is not their principal residence, which is important for tax purposes. Since the property is not their principal residence, they will have to pay capital gains tax when the home is sold. The principal residence provides preferential tax treatment, and is lost when you make your child an owner of a home they don’t live in. The income tax consequences of joint ownership with adult children are often higher than any estate administration (probate) tax your estate might pay.
- You no longer have full control over this asset. Your child could prevent you from selling the property, or from obtaining a mortgage or other credit secured on the property. You will need their consent to deal with the property in any way.
- If your home is your only asset, what happens to your other children? If you have listed one child as the joint owner, they become the sole owner on your death and the home will not be part of your estate. Your estate may not have any money to leave to your other children. Also, if your intentions were not clear, your other children may challenge the joint ownership, which will increase legal costs and diminish the value of your estate for all your children. It also could destroy sibling relationships.
- If you do provide for your other children in your will, what happens if the child who co-owns your property dies before you? The house will be solely yours again, and there will be no provision for your deceased child’s family to inherit their interest in the home. You will need to amend your will again. If you have become incapable, you may not have capacity to change your will, which would lead on an unequal distribution of your estate between your heirs.
- Your child will lose their status as a first time homebuyer if they don’t already own a home. If they buy a home in the future, before you die, they will be ineligible for a number of financial incentives.
- Estate administration tax or “probate” in Ontario isn’t actually that much. The Ministry of the Attorney General’s Estate Administration Tax Calculator is available here. If your home is your only asset and it is valued at $500,000, the “probate” tax is $6,750.00. If your child makes $80,000 per year and their share in your home increases in value by only $50,000 between the time you add them to title and your death, they will pay $7,772 in capital gains tax.
- There are other ways to potentially reduce or eliminate “probate” tax, such as primary and secondary wills where the secondary will disposes of your home. This is particularly appealing if you have owned your home in Cornwall and area for over 20 years.
So, when does this ever work? It can work in very specific circumstances, but working with an experienced lawyer with knowledge in real estate, estates and estate planning and taxes is important. Otherwise, you are likely creating more problems than you are solving.