Tag: PITFALLS OF JOINT OWNERSHIP
Although probate fees in Ontario are relatively modest (approx. 1.5% of the estate value), most wish to avoid or reduce them.
With respect to which assets you must pay probate fees on, section 1 of the Estate Administration Tax Act, 1998 defines the “value of the estate” as “the value of…all the property that belonged to the deceased person at the time of his or her death less the actual value of any encumbrance on real property that is included in the property of the deceased person”. As joint-property vests in the co-owner of the property immediately before the time of death of their co-owner, the asset cannot be said to belong to the deceased person at the time of their death. An exception, of course, is the rebuttable presumption of resulting trust expounded in Pecore v Pecore.
Although parents may wish to place assets in joint-ownership with an adult child to avoid probate fees, here are five ways that doing so can have negative consequences:
- No savings – If the resulting trust presumption that property transferred into joint tenancy by a parent to the parent and his/her adult child results to the deceased parent’s estate is not rebutted by showing a clear intention of a gift, the transfer may not work to save on probate fees.
- Loss of control – The property cannot be sold or mortgaged without the child’s consent.
- Negative tax consequences – the transfer of an asset with accrued gains to someone other than a spouse is a deemed disposition at fair market value. Further, if the property is the parent’s principal residence, half of the principal residence exemption may be lost for the years following the transfer during which the child is not living in the property.
- Spousal claims – The property may be exposed to claims against the child by his/her separated spouse.
- Creditor claims – financial troubles and/or declarations of bankruptcy can result in the child’s interest in the property being subject to creditor claims.
These and other potential pitfalls are reviewed in a recent piece in The Lawyers Weekly.
Thanks for reading,
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