Should I Add My Child as a Joint Owner on My Home?
As a financial advisor, I am frequently asked whether a child should be added as a joint owner of a home. Usually, this question comes up as a part of an estate planning discussion. The goal is usually to avoid probate fees and simplify the estate. If a child is a joint owner of a home, when you pass away, the house will pass directly to them and bypass the estate, avoiding probate fees. I understand the appeal, however, all the pros and cons need to be considered prior to adding your child as a joint owner. To start, you can’t just add a name to your house, your child is becoming an owner of the asset and has rights that come with ownership. There are a few types of joint ownership, relevant to our discussion is joint owners with rights of survivorship. So, if two folks own a home, when one passes away, it immediately transfers to the survivor. As a joint owner, your child will have a say in the decision involving the home. For example, if one day you decide to sell or downsize, take out a mortgage, or access the equity in the property with a reverse mortgage, decisions of that nature require the consent of the joint owner, and your child must agree and sign all of the papers.
By adding a joint owner, you give up some control. Another item to consider is creditor risk. If your child has financial troubles, or bankruptcy, as a joint owner, they are a legal owner of the house, and that asset could be exposed to their creditors. Also, if your kid has a marital breakdown, your child’s ownership in your home is an asset and could be included in the divorce.
Tax should also be something you consider. In Canada, we get the principal residence exemption, which means your principal property, our home, can be sold tax-free. If the home is solely in your name, when you sell it, whether it’s done prior to your passing away or as a part of the estate, there won’t be any tax. Assuming your child does not live with you and has their own addition, adding them as joint owner means they now have ownership in two properties. Only one can be claimed as their principal residence, which means they might have to pay capital gains tax on the second property.
The underlying assumption of the above discussion is that you only have one child. If there are multiple children, it gets more complicated. Having multiple children added as owners of a property magnifies the issues mentioned above. Also, if you only list one as an owner, it could raise the question of equality. If one child gets the house, what do the others get? It is also worth mentioning that a few years ago the province of Manitoba stopped charging probate fees. While there still might be legal costs associated with passing a house through the estate, there will no longer be any probate fees, which removes one of the advantages of having your child as a joint owner of your home. There are circumstances where adding a child as a joint owner of your home makes sense. However, such a decision should be carefully considered, and discussions with your lawyer and accountant are encouraged to ensure there are no unintended consequences.
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The comments and opinions expressed in this article are solely the work of Clinton Orr, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this article, is for general information only, does not constitute legal or tax advice, and the author Clinton Orr does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.
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