Putting a Child on Your House Title in Ontario: Estate Risks

Many aging parents consider adding an adult child to the deed. The reasons are understandable: easier management, avoiding probate, or simply wanting the child to have the home.

The move can create problems that surface only after the parent dies or becomes unwell. This article walks through the main risks to the estate, creditors, taxes and the other children so you can ask better questions before anyone signs.

What the law presumes when a parent adds a child

Under Pecore v. Pecore, a gratuitous transfer from a parent to an adult child is presumed to be a resulting trust, meaning the child holds it for the parent. The child must prove the parent intended a gift. The presumption of advancement applies only to minor children.

The Court of Appeal applies the presumption of resulting trust to gratuitous transfers of property, and the transferor's intention at the time of transfer is what is determinative. In Holtby v. Draper, a gratuitous property transfer was found not to have rebutted the presumption.

The practical lesson is that what the parent meant at the time matters, and the paperwork alone may not settle it. If the parent only wanted help managing the house, the child may be found to hold it for the parent and, later, for the estate. If a gift was meant, that intention is easier to defend when it was clearly recorded at the time. A lawyer can explain how to document intention.

How the form of ownership changes the outcome

A joint tenant's death passes the share to the surviving co-owners, while a tenant in common's share becomes part of that person's estate. Title is registered as one or the other, and that registration decides whether the survivor takes the share.

If the house passes by survivorship, it is not counted in the estate value for Estate Administration Tax. That is often the attraction. For estates where tax applies, the rate for certificates applied for on or after January 1, 2020 is $15 for every $1,000 of estate value over $50,000, with nothing owed at $50,000 or less.

Saving that tax can be costly in other ways. If the house does not form part of the estate, your will may not govern it, so other children may feel excluded. A dispute over whether the child was meant to keep the house or hold it for everyone can be far more expensive than the tax avoided.

Creditors and the child's own life

Once a child is on title, the house is tied to the child's circumstances. The Court of Appeal recognizes that a joint tenant who sells or encumbers their own share can sever the joint tenancy. If that happens, the parent's share may no longer pass by survivorship.

Creditors can matter as well. Severance by a creditor's execution must be acted upon before the joint tenant dies. If a writ is filed but not acted on before death, the surviving joint tenant takes the property free of the execution. Timing therefore decides who ends up better off.

• A child's debts, separation or financial trouble could affect the parent's home.
• The child may be able to deal with their own share without the parent agreeing.
• Whether the child must take part in a later sale or refinancing depends on how title is held, so ask a lawyer.

Taxes and other consequences

Adding a child to title can have tax and other legal consequences beyond the estate. Those depend on the facts, and an accountant and a lawyer should confirm them before any transfer.

On death, a taxpayer is treated as having sold each capital property immediately before death at fair market value. The deceased's principal residence designation applies only until the date of death, and even if the whole gain is exempt, the legal representative must designate it on the final return using Schedule 3 and Form T1255.

If the estate or trust later sells the property, the gain goes on line 1 of the T3 return and is generally the sale price minus the fair market value reported on the final return, plus disposition costs.

For comparison, if the house stays in the estate, it is valued at appraised value on the date of death, less encumbrances such as a mortgage or lien, and credit cards and lines of credit cannot be deducted. Ontario says an estate normally must be probated if the deceased owned real property that does not pass by right of survivorship.

What to do next

Before changing title, ask what you are really trying to accomplish. Easier management, avoiding probate and leaving the home to one child are different goals, and there may be different ways to reach each.

• Write down why you want to add the child and what you expect to happen to the house.
• Talk to all of your children openly, or at least decide deliberately not to.
• Ask a lawyer about the form of ownership, a written record of intention and alternatives to changing title.
• Ask an accountant about capital gains and the principal residence designation.
• Check for a mortgage or other charge on the property.
• Consider the child's own debts, relationships and risks before they become an owner.

Frequently asked questions