British Columbia·Opinion

How registering your adult child to the title of the family home can cost you

Adding someone else to the title of a home might help the estate to avoid paying probate tax, but it also puts the home’s principal residency tax exemption at risk.

It might save some tax but it comes with a lot of risk, writes Mark Ting

If the goal is to avoid probate tax, there are other, less risky, strategies available. (Rafferty Baker/CBC)

A retiree asked what I thought about adding her adult daughter to the title of the family home.   

She had heard it's an effective way to transfer ownership of the home to her daughter and avoid paying probate tax upon her death.  

In many cases this is not a good idea.  Adding someone else to the title of a home might help the estate to avoid paying probate tax, but it also puts the home's principal residency tax exemption at risk.

For example, let's assume the daughter was registered on title of her mother's home worth $500,000 back in 2011.  

In 2019, if the mother passes away and the home is sold for $1 million, this causes a tax problem if the daughter already owns her own home.   

On the mother's death, half of the appreciation on her home (the daughter's portion) since 2011 would be subject to capital gains tax — a tax bill of approximately $63,000.   

In order to save $14,000 of probate tax, which is slightly less than 1.4 per cent of the value of the home ($1 million), the family will have to pay approximately $63,000 in capital gains tax.     

Had the daughter not been registered on title of her mother's home, the estate would pay the probate tax but the proceeds of the sale of the home would arrive tax free. They would be better off by $49,000.

Mark Ting is the financial columnist for CBC Radio's On The Coast. (Shana Hugh)

Other potential conflicts

There are other drawbacks as well. With the daughter going on title, the mother is giving up some flexibility. If the mother ever wanted to re-finance or sell her home, she would have to first get the approval of her daughter.

Her home is also at risk if the daughter's financial situation changes.  For example, if the daughter experiences a divorce, is sued or racks up a lot of debt, then her ex-husband, claimant or creditors could lay claim to the daughter's half of her mother's home.     

There is also potential for sibling conflict. If one daughter automatically receives the home when her mother dies, what happens if there are other children?  What do they receive?

The assumption usually is that any proceeds from the family home will be split equally between children, but ultimately it is up to the person who owns the home. Unequal distribution of the mother's estate can be awkward, cause sibling tension and, unfortunately, litigation.

Adding someone else to the title of a home might help the estate to avoid paying probate tax, but it comes with a lot of risks. (Jonathan Hayward/The Canadian Press)

In order to prevent such conflict, some parents put all their children on title.  

While this keeps things equitable, it does nothing to prevent the loss of principal residency tax exemption. In fact, it makes it worse as the more people on title; the greater the risk that tax exemption will be lost/reduced.

Some exceptions 

There are times when it makes sense to put an adult child on title of the family home.

 According to Khushhal Bains, a lawyer with Bell Alliance, there are ways to have a child on title and avoid probate tax while maintaining the home's principal residency tax exemption.   

The strategy involves creating a bare trust agreement indicating that, for tax purposes, the mother is the sole beneficiary of the family home.

This type of strategy is suitable for those doing end-of-life planning — typically retirees in their 80s who are detail oriented and can stick to the plan created by their lawyer.

If my parents were to ask me to go on the title of their home, I would politely decline.  It's not worth putting my relationship with my brother or the home's principal residency tax exemption at risk.  

If the goal is to avoid probate tax, there are other, less risky, strategies available.

This column is part of CBC's Opinion section. For more information about this section, please read this editor's blog and our FAQ.

About the Author

Mark Ting is a partner with Foundation Wealth, where he helps clients reach their financial goals. He can also be heard every Thursday at 4:50 p.m. on CBC radio as On the Coast’s guide to personal finance. @MarkTingCFP mark.ting@foundationwealth.ca

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