Should you add your kids to the title of your home?

As people age, they tend to worry. And when it comes to real estate, a common concern is what to do about their home. For example, should you leave it to your kids in your will? Your inclination might be “yes,” but what you may not know is that they would need to pay probate tax on the fair market value. Today, that’s a lot of money.

The process of probate grants or confirms the authority of the Estate Trustee (Executor) to handle the affairs of the estate and is required in most cases for the transfer or sale of any real estate owned by the deceased, that now forms a part of their estate.

Capital gains

When you die, your lawyer applies to the court to issue a certificate. Subject to where you live, probate applications can take anywhere from more than a month to more than a year before the courts issue a certificate. The worst part is that there is a 1.5-per-cent tax payable up front with the application on the value of all estate assets exceeding $50,000. On a $1-million home, that’s $15,000.

Now, if you add your kids to the deed and you die, they still have the house. Will that work? It sounds like a good idea, because if you registered as joint tenants, whomever is left owns the property without tax. But nothing is that easy.

First of all, when you die, your principal residence has no capital gains when it goes to your kids. If you add someone, the portion that belongs to them attracts tax as the value goes up after they were added. Clearly, this is not ideal.
Secondly, if you add your children, they are real owners and could make your life difficult. If you want to sell or take out a mortgage, for example, they could interfere. Also, their problems become yours, in cases of divorce, or adding an in-law suite, for instance.

Thirdly, it might not even be your child you’re dealing with in such instances. While it is not a scenario any parent wishes to consider, you should think through what happens if a child added to the title should predecease you or become significantly disabled. Depending on several factors, including how they have structured their affairs, you may not simply receive full ownership back, and could instead find yourself negotiating with someone acting under a Power of Attorney or the Trustee of a deceased child’s estate, their spouse, sibling or your grandchildren.

No clear answers

As much as you’d like a clear answer to these questions and scenarios, there really isn’t one. There is no universal panacea. With record high valuations of real estate relative to the incomes of many people, the planning considerations that go into transferring one’s real estate requires you to consult the appropriate professionals to get an accurate overview of your options. Every person’s situation is different, and usually requires a specific approach.

Initial steps would be to holistically review your estate situation and come up with a plan to minimize tax and maximize any benefits. Sometimes, it is as easy as selling the house to the kids and taking back a life interest; as simple as doing nothing; or as complicated as setting up an estate plan involving freezes, rollovers and other considerations.

The bottom line is – take your planning seriously. Consult experts and make decisions that provide peace of mind and security that you have taken care of your family the best you can.