Almost every month, I get a phone call or an e-mail from a client asking whether they should add their adult children to the title of their home. Some of these queries are based on information that the client has heard online or through social media or the internet. Before you transfer ownership of your property to your adult children (or add them to the title), you should consult with a lawyer (and an accountant). While it may seem like a good way to avoid probate fees and simplify your estate planning, transferring your property to your children, can have unintended consequences.

Exposure to Creditors

First, you are exposed to creditors of your adult child and his/her Family Property Act claims – Any creditor of your child can register a judgment against the jointly owned property if the creditor has a court judgment . The Canada Revenue Agency can register a lien for non-payment of taxes if the adult child owes income tax. If the adult child owes child support, the Maintenance Enforcement Program can register a judgment against he property. In addition, the child’s interest in the property may be subject to a Family Property Act claim if the child is divorcing his or her spouse.

Inability to transfer interest and loss of control

Upon death, the parent’s portion will go to the adult child not the parent’s estate (with some exceptions as listed below). Once the title has been transferred into joint names, the parent cannot sell or mortgage the property unless the co-owning child or children agree. If the parent wants to transfer the property back into his/her sole name, and the child doesn’t agree, the parent would have to make a court application to transfer the property.

Tax Consequences for parent and child

Any transfer to a parent and child is considered a disposition for income tax purposes and, if the property is not the parent’s principal residence, the parent could be responsible for paying capital gains upon the transfer, even though no money changed hands. Further, any future capital gains would proportionally be the responsibility of the child. If the adult child does not live in the property, the child cannot claim any principal residence exemption for any future increase in the value of the property.

Avoiding probate

Many clients are concerned about probate fees or the time it takes to probate. In Alberta, the probate fees the Court of King’s Bench charges are nominal ($525 is the maximum fee charged) and a grant of probate can be obtained in about 4 weeks. (Read our “What is Probate?” blog post for more information.) Therefore, avoiding probate fees is not a good reason to add an adult child to the title of your property.

Power of Attorney

Another reason clients ask about adding a child to the title of their property is to give the child the power to assist the parent with managing the property and dealing with bills for the property. I do not recommend adding a child tot the tile as a way to help with the parent’s assets. It is much better for the parent to have an Enduring Power of Attorney (particularly a springing power of attorney) appointing their child or children if they need assistance with managing their property. First, an attorney has a fiduciary duty and is accountable for their actions. An attorney must keep records of all transactions. Second, with a power of attorney, the title remains in the parent’s name. Third, a power of attorney can be revoked as long as the donor has capacity.

Estate Issues

There is a presumption at law that a joint tenant who has not made any contribution toward a property holds his/her interest in trust for the owner that has contributed to the property. One exception to this is the doctrine of advancement. Advancement refers to the idea that a gift has been given in advance of a person’s death. There is a presumption of advancement when property is transferred from a parent to a child. The Supreme Court of Canada clarified the rules with respect to advancement and gifts to adult children in 2007 in the Pecore and Madsen cases. In those decisions, the Supreme Court of Canada stated that the presumption of advancement does not apply to transfers between adult children and parents. Therefore, an adult child who receives property via survivorship which was held as joint tenants, must prove that the deceased parent wanted the adult child alone to receive the property and did not want the property to go to his or her estate.

Another issue that can rise is that If more than one adult child is on the title with the parent and one child passes away before the parent, the property will go to the surviving children and the deceased child’s family will not get anything from the sale of the property.

Conclusion

You should consult a lawyer and an accountant before adding a child to the title of your property. It is also essential that if a parent is adding one or more adult children to the title of their property, the parent put their intentions in writing. This will avoid confusion and ambiguity.

Joint Tenancy vs. Tenancy-in-Common

When you purchase a property with another person, you have a choice as to whether you want to own the property as joint tenants or as tenants-in-common. For a joint tenancy to exist, four characteristics (or “unities”) must exist: the holding of each joint tenant must be equal in nature, extension, and duration (unity of interest); they must arise from the same act or instrument (unity of title); they must arise at the same time (unity of time); their rights must relate to the same piece of property (unity of possession)[i] The ownership in joint tenancy must be explicitly stated on the title or the transfer.

Where title is held by two people as "joint tenants" and one of the owners dies, the other owner becomes the sole owner of the Property.  (The joint tenant has what is called a “right of survivorship”; basically, the surviving joint tenant inherits the whole property. Usually spouses will hold title to a property in joint tenancy.)  However, where title is held as "tenants in common" and one of the owners dies, the deceased owner's interest (his or her portion) passes to his/her beneficiaries under his/her will or, if there is no will, to his/her heirs in accordance with intestacy law. Basically, under a tenancy-in-common, the interest in the property forms part of your estate and is distributed as the rest of your estate is distributed.

Conversely, with joint tenancy the whole property is jointly owned i.e. there is no percentage of ownership for each owner while with tenancy in common, you can divide the ownership any way you like for e.g. 50% - 50% ownership, 90% - 10% ownership, 75% - 25% ownership but there is no right of survivorship, so a grant of probate from the Court of Queen’s Bench would be necessary to pass your interest to your heirs.

When there are more than two owners there are three title/ownership options: 1) all of the owners can be on title as joint tenants with each other 2) all of the owners can hold title as tenants-in-common 3) some of the owners could hold title in joint tenancy with other owners  and the remaining owners could  hold as tenants-in-common with the joint tenants.

If no ownership is indicated on a title, the default is a tenancy in common. A joint tenancy can only be created if the title explicitly has the words, “joint tenancy” on the title.   Therefore, it is very important that if you wish to hold a property as joint tenants that it be expressly stated on the title.  One of the advantages of holding property in joint tenancy is that upon the death of one owner, no probate is required to transfer the property into the names of the co-owners.  (Keep in mind that the title only goes to the co-owners not the heirs of the deceased owner. If the heirs and the surviving owners are different people, then joint ownership may not be the way you want to hold title.)  Upon the death of a co-owner, the surviving co-owners must submit a declaration to the Land Titles Office with a copy of the deceased owner’s death certificate and the title is changed by removing the deceased owner’s name from the title.  In contrast, for a tenancy-in-common,  a probate application is required to transfer the deceased owner’s interest in the property to his or her heirs. 

For example, Anne and Bob are a married couple and they purchase a property and register the title as joint tenants.  If Anne dies before Bob, Bob becomes the owner of Anne’s interest by right of survivorship. If Bob dies before Anne, Anne becomes the owner of Bob’s interest by right of survivorship and Bob must submit a declaration at the Land Titles Office to change the title to stand solely in his name.  When they both die, the last survivor, will pass the property to his or her heirs.

On the other hand if  Anne and Bob purchase a property and register the title as tenants-in-common with a 50% interest each and Anne dies before Bob, Anne’s 50% interest goes to her heirs.  Now, if Anne’s will states that her estate is to be divided with 90% going to Bob and 10% to XYZ charity, Bob will not receive the entire 50% that belonged to Anne. Anne’s will will also have to be probated before Bob can receive his inheritance from Anne’s estate.

Severing a joint tenancy

A joint tenancy can be severed by a person acting on his or her own share, by a mutual agreement, or by any course of dealing sufficient to make known that the interests of all were mutually treated as constituting a tenancy in common.

[i] Definition from Bruce Ziff , Principles of Property Law, 3rd edition (Scarborough, ON: Carswell, 2000) at 302

What is a Real Property Report?

A Real Property Report (RPR) is a survey completed by a land surveyor (a member of the Alberta Land Surveyors Association).  The RPR shows the visible improvements made to the property and the property’s boundaries. As per the current standard Alberta Real Estate Association (AREA) contract, a RPR has to be provided by the Seller of a property to the Buyer of the property or the Buyer’s lawyer giving the buyer or buyer’s lawyer a “reasonable time to review the RPR prior to submitting the transfer documents to the Land Titles Office”.  Further, the standard AREA contract has a warranty that the seller warrants that all buildings and improvements are on the land and not on any easements, rights-of-way, or neighbouring lands. A Real Property Report is the only way to verify this warranty.

The key characteristic of the Real Property Report (RPR) is that it should be up to date i.e. the RPR should reflect any changes/additions to the property. Does the RPR represent the state of the property as it is now i.e. does it show all fences, decks, garages, driveways, sheds, patios, eaves, cantilevers, air conditioning units etc. that are on the property? If not, the Seller must provide a new RPR with evidence of municipal compliance. If the RPR has been completed recently it usually shows all improvements. (Buyers need to be careful to ensure that the Seller has ordered a RPR after a deck or fence has been built or after changes were made to the property.)  The RPR should be compared with the actual site/property to make sure improvements that are on the property are shown on the RPR. If a fence or deck has been removed, it does not need to be shown on the RPR but if one has been added, it must be shown on the RPR.

Why have a Real Property Report?

Without a Real Property Report and Certificate of Compliance, it cannot be ascertained whether the buildings and structures purchased are located within the boundaries of the Property; whether the Property is free from encroachments by buildings or structures on adjoining properties, on easements or on rights of way; or that the property complies with applicable zoning regulations. Only an up-to-date RPR provides that security.

Buyers often ask if title insurance can be purchased in lieu of a RPR. Title insurance will only cover certain defects and will only give you financial protection if problems arise in the future. Title insurance policies have exclusions and exceptions. For example, most title insurers will not provide insurance coverage for an encroachment on to the property unless a government authority requires that the encroachment be removed.  If a structure from your property encroaches on to a neighbour’s property, the neighbour will ask to have the structure removed, not a government authority. Therefore, title insurance would not cover the removal of the structure and the owner would have to pay the costs for the removal or the costs for remedying the encroachment.   Alternatively, an RPR provides information about property compliance issues up front so issues can be dealt with before closing. Buyers  may want to have an RPR along with title insurance coverage as title insurance may cover internal non-compliance issues that do not show on an RPR  (such as lack of building permits or failure to meet building code on renovations).

When should you order a Real Property Report?

At the time of listing the property, the Seller should locate the RPR. If the RPR cannot be found, a new RPR should be ordered, as soon as possible. Survey companies can take up to three weeks to survey properties and complete the RPR.  Ordering a rush RPR will incur additional costs. After the survey is completed, it must be submitted to the municipality for compliance. This process can take an additional week or two. The sooner the RPR can be ordered and submitted for compliance, the sooner the Seller and the listing agent can review it to ensure that there are no problems with encroachments or zoning or remedy any problems that are required to be resolved.