August, 2024

Disclaimer: This article discusses estate planning.  It is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

We have spoken before to elderly parents about adding their adult children to their joint accounts and their investments. We know you want to avoid paying estate tax, avoid probate, or want to simplify the process for your loved ones. 

However, should you put your adult child’s name on the title of your home? If you are the adult child, should you agree to be added to your parent’s property? On the surface, this seems like a straightforward solution, but the reality is far more complex. Significant legal and financial risks could turn this seemingly simple step into a costly mistake.

This article will talk about the risks involved. However, we encourage you to speak to our team of estate law lawyers to create an estate plan that works for you and your family. 

Should I add my child’s name on title to my house?

In Ontario, transferring or adding someone to a land title is not as simple as it may seem. Below, we explore some of the key risks involved.

Changing a house title in Ontario – knowing the risks

In Ontario, a title change is not as simple as it may seem. Below, we explore some of the key risks involved in adding your child’s name to title.

How Your Child’s Life Changes Impact Title

One of the most significant risks arises from the fact that your child’s circumstances can change unexpectedly, and these changes can directly impact your home. Once your child’s name is on the title, they are legally recognized as a co-owner of the property. This means that their personal and financial situations—such as marital issues, debts, or legal troubles—can have serious implications for your home.

Imagine that you add your son to the title. A few years later, he faces a divorce, and his spouse claims that the home should be considered a matrimonial asset. Under Ontario’s Family Law Act, the property could be subject to division, meaning that your son’s ex-spouse could have a claim to a portion of your home. 

Similarly, if your child incurs significant debt, their creditors may turn their attention to the property. Creditors could take action to recover what is owed. 

Removing their name could be costly 

What if your circumstances change, and you decide to remove your child’s name from the title? Unfortunately, removing a name from the title is not straightforward, and it can involve more than just a simple paperwork adjustment.

When a name is added to a title, the law recognizes the new owner’s legal rights to the property. This means that, once added, the co-owner typically must sign off and agree to these sorts of changes. If they refuse, you could find yourself in a difficult legal position.

Family disputes and broken promises

Adding one child to the your home’s title can create expectations and promises that may not be honored after your death. Even if your child agrees to divide the property fairly with their siblings, there is no legal obligation for them to do so once they become the sole owner through the right of survivorship.

A mother adds her eldest daughter to the title of her home, with the understanding that the daughter will sell the property after her death and divide the proceeds among her siblings. However, after the mother’s passing, the daughter decides to keep the property for herself, arguing that she is the rightful owner by law. The other siblings are left with no choice but to take legal action against their sister, resulting in a costly and emotionally draining legal battle that could have been avoided with clearer estate planning.

Before you add a name or do a title transfer, contact Beeksma Law!

The decision to add a child’s name to your house title should not be made lightly. While the goal is often to simplify estate processes and save on taxes, the potential risks are significant and can lead to far more complicated and costly situations than you might expect.

At Beeksma Law, we focus on estate law and can guide you through planning for your future. Before making any decisions, contact us for a consultation. Together, we can create a plan that avoids these pitfalls and secures your legacy for the next generation.

We also encourage you to consider our other blog articles. We care about the legacy you leave behind for your family, which is why we have covered many estate topics in our blog, such as choosing an executor or understanding what happens to your mortgage when you pass away. 

Disclaimer: This article discusses Estate Planning.  It is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

Many Canadians want to try and avoid probate fees as much as possible and this can guide their estate planning. One area where we see this is when it comes to joint investment accounts. 

However, like joint bank accounts, there are risks involved. What happens to these joint investments when you pass away? How are they treated within the estate?

In this article, we’ll review the legal presumptions surrounding joint ownership. Then we’ll discuss the potential risks to your estate. For personalized advice, we invite you to reach out to our team for a complimentary consultation.

Capital gains tax versus estate taxes and probate fees

The concerns over estate taxes and probate fees are often exaggerated. In reality, these costs are generally less significant than capital gains taxes. Probate fees, which cover the legal process of administering an estate, are typically a small percentage of the estate’s overall value and can be mitigated with effective planning. On the other hand, capital gains taxes can be significantly higher.

Let’s compare: Estate tax is 0.5% for the first $50,000 and 1.5% for anything over $50,000. Let’s compare that to capital gains tax. Your beneficiaries would be taxed on 50% of capital gains up to $250,000. Any gains exceeding $250,000 will be taxed at a higher rate of two-thirds, or about 66.67%.

When someone passes away, their investments are treated as if they’ve been sold at their current market value, which can lead to significant capital gains tax on any increase in value. This tax can often be much higher than probate or estate fees.

What does the law presume about joint investments with an elderly parent?

When a parent adds their child as a joint owner to an investment account, the law typically presumes that this arrangement is a resulting trust rather than a gift.

A resulting trust is a legal concept where the child, as a joint owner, is considered to hold the investment in trust for the benefit of the parent. This means that the child does not gain full ownership of the investment; instead, they are expected to manage it on behalf of the parent. Upon the parent’s death, the presumption is that the investments remain part of the parent’s estate unless there is clear evidence that the parent intended the investments as a gift.

What are the risks of joint ownership of investment accounts?

Joint ownership of investment accounts can pose significant risks, particularly when involving non-spouses such as adult children. Legally, joint accounts with non-spouses do not guarantee that the children will be recognized as beneficial owners. Without clear documentation, these assets might be included in the estate, which can lead to probate fees and legal disputes.

Control and security concerns are also notable with joint accounts. Co-owners can withdraw funds or change account terms without the consent of the other owners, which can diminish the original owner’s control. Furthermore, joint accounts are vulnerable to claims from creditors or complications arising from a co-owner’s divorce. If the court deems the investments as held in trust rather than as a gift, the adult child may lose access to these funds.

The assets would then be returned to the estate and distributed according to the parent’s will or probate laws, which could lead to unexpected financial challenges and disputes among family members.

How can you avoid these pitfalls?

To avoid complications, it is crucial to clearly document the parent’s intentions regarding the joint investments. If the investments are intended as a gift, you should create a gift acknowledgment. If not, have a lawyer draft a trust agreement. This agreement should explicitly state that the investments remain the parent’s property and are managed by the child on the parent’s behalf.

In either case, working with a lawyer to draft these documents is essential to ensure everything is clear. Proper documentation can save significant time, money, and emotional stress for all parties involved, helping to maintain family harmony during difficult times.

Build a strong estate plan with Beeksma Law

When navigating the complexities of joint ownership and estate planning, you need strong, strategic guidance. At Beeksma Law, we bring extensive experience and a deep understanding of the nuances involved. Our team not only excels in estate law but we also have strong connections with professionals in tax, finance, and other related fields.

By choosing Beeksma Law, you benefit from our proven track record to safeguard your financial and legal interests and help you leave behind the greatest gift of all – peace of mind.

Disclaimer: This article discusses Estate Planning. It is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

When we think about what we leave behind for our loved ones, we often focus on assets and memories.
But what about debts?

For many, the thought of passing on financial burdens can be just as concerning as planning for the inheritance of wealth. Understanding how your debts will be handled when you’re no longer here is not just a practical matter—it’s an essential part of securing peace of mind for you and your family.

Let’s dive into how different types of debt are managed after death, so you can ensure your estate is settled with clarity and care. We will also talk about how you can build a strong estate plan that will help leave your beneficiaries with peace of mind.

What happens to your debt when you die? Will your beneficiaries inherit your debt?

In Ontario, when you die, your debts do not automatically pass on to your beneficiaries. Instead, your estate is responsible for settling any outstanding debts. Your beneficiaries will not inherit your debts personally, but the debts will be settled using the assets of your estate before any inheritance is distributed. If your estate does not have enough assets to cover your debts, creditors may not be able to claim the shortfall from your beneficiaries.

They would only be responsible for your debt obligations if they are a joint debtor or have co-signed or guaranteed the loan contract.

What happens if you die with more debt than assets?

In estate law, there is something called abatement. When an estate’s assets are insufficient to cover all debts, expenses, taxes, and the intended gifts outlined in the will, the beneficiaries will have their gifts reduced. If abatement is necessary, beneficiaries may receive less than what was originally intended in the will or, in some cases, nothing at all.

If the executor has sold the assets and those are used to pay any debt, and there is still money owing, then the estate would be insolvent or bankrupt and should be assigned to bankruptcy.

What happens to your mortgage when you die?

Secured debts, such as mortgages, are tied to specific assets. In the case of a mortgage, the lender holds a claim against the property. When you pass away, your mortgage debt must be settled, and this is typically done through the estate. The estate trustee will pay off your mortgage debt by either selling the property or transferring it to a beneficiary who will assume responsibility for the mortgage, subject to lender approval.

If there is a surviving co-borrower on the mortgage, they will continue to be responsible for paying the mortgage.

This is subject to what is in your lender agreement so be sure to look at that!

What happens to your credit card debt and other unsecured debt?

Unsecured debts, such as credit card balances, an unsecured line of credit or personal loans, are managed differently.

These debts are repaid from the assets of your estate. However, if the estate does not have sufficient assets to cover the unsecured debts, that outstanding balance may remain unpaid. Creditors generally cannot claim these unpaid debts from your beneficiaries.

Beeksma Law: Helping you leave behind peace of mind

Beeksma Law is committed to providing exceptional estate planning services that ensure your loved ones are protected from the burden of unresolved debts. Our team of experienced estate lawyers is not only skilled in navigating the complexities of debt management after death but also connected with a network of professionals, including valuation experts and insolvency and bankruptcy lawyers. This collaboration ensures that every aspect of your estate is handled with precision and care, from asset valuation to debt settlement.

At Beeksma Law, we understand that your estate plan is about more than just distributing assets—it’s about leaving behind peace of mind. With our comprehensive approach and professional connections, you can trust that your estate will be managed efficiently, preserving your legacy and safeguarding your family’s future.