JOINT OWNERSHIP: IS IT GOOD ESTATE PLANNING?
Our older clients frequently enquire about transferring title
to their house or cottage from sole ownership into joint
ownership with their children. People have been told there is a
significant savings to their Estate by the elimination or
reduction of Estate Court fees. What are the pros and cons of
this suggestion?
AN EXAMPLE
Let us use an example of widow Jane Smith and her son David
Smith. Mrs. Smith owns a home presently valued at $250,000.00.
David is her only son and sole heir. Mrs. Smith is 65 years old.
SAVINGS IN ESTATE COURT FEES
If the house were transferred from Jane Smith's sole ownership
to that of Jane Smith and David Smith as joint tenants, then on
the death of either of these parties the survivor would take the
entire ownership of the property "by right of survivorship".
This means that title to the property would pass outside the
deceased's Estate and accordingly the value of the house is not
included in the Estate valuation, which is the basis on which
Estate Court fees are calculated.
Estate Court fees on an Application for a Certificate of
Appointment of Estate Trustee (Letters Probate) are payable at
the rate of $5.00 per thousand dollars of Estate value up to
$50,000.00, and at the rate of $15.00 per thousand dollars on the
balance. In our example, if the house formed part of Mrs. Smith's
estate, then Estate Court Fees of $250.00 would be payable on the
first $50,000.00, and $3,000.00 would be payable on the balance
of $200,000.00 resulting in total Estate Court fees of $3,250.00.
Keeping in mind that a transfer of title will occasion some
legal fees, disbursements and registration charges of probably
$350.00 in total, the "savings" to the Estate amounts
to about $2,900.00.
LOSS OF CONTROL
Transfer of title is no mere formality. Mrs. Smith will no
longer be sole owner of her house. Suppose, for example, that
David and his wife later have a marital breakdown. David's
one-half interest in the house would be considered part of his
net family property in any division of assets with his estranged
wife. If he needed money to make an equalization payment to his
separated spouse, he might well be forced to sell his interest in
the jointly owned property.
TAX IMPLICATIONS
If the asset transferred is not a principal residence, a
capital gain on the interest transferred (e.g ½ of the
value, in our example) is triggered for the transferor. The
cottage would attract this tax liability, as would other assets
like stock certificates.
For the new joint owner there are capital gains tax
implications because it is not his principal residence. If the
home increases in value between the time of the transfer and the
time it is sold or Mrs. Smith dies, there will be a capital gain
and tax payable thereon. For example, if the house increases in
value from $250,000.00 to $350,000.00, David will have a
$50,000.00 capital gain (i.e. one-half of the $100,000.00
increase); his tax liability could easily be $15,000.00 on that
capital gain. The tax liability can easily negate any savings of
estate Court fees. If the house were transferred to David as Mrs.
Smith's estate's beneficiary, there would be no tax payable.
HOW LONG DO YOU PLAN TO LIVE?
Life expectancies have dramatically increased in our society
over the past thirty years. Mrs. Smith is most likely to live to
age 84 and may well live beyond that. She may need for herself
the entire proceeds of sale of this home to support herself.
OUR RECOMMENDATION
Based on the foregoing considerations, we normally recommend
AGAINST this kind of transfer of ownership. There are rare
circumstances in which it may be worthwhile. Before considering
and agreeing to such a transfer, you should review these and
other considerations with your solicitor and your tax adviser.
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