Does Joint Ownership Help You Avoid Probate Fees in Ontario

Many parents ask whether they should put a child on the title of the family home so it will pass outside the estate and avoid probate fees. The idea has some basis in the rules, but it is not a simple shortcut.

Before you act, it helps to understand the tax you are trying to avoid, how joint ownership works, and the legal problems it can create.

The fee you are trying to avoid

Ontario's Estate Administration Tax is $15 for every $1,000 (or part) of estate value for estates over $50,000. Estates of $50,000 or less pay none. An Estate Information Return is due within 180 calendar days after the estate certificate is issued.

An estate normally must be probated if the deceased owned real property that does not pass to someone else by right of survivorship. That is why joint ownership comes up: property that passes by survivorship does not need to go through the estate in the same way.

How joint ownership can reduce the estate

Assets held jointly that automatically become the other owner's on death are excluded from the estate's value for Estate Administration Tax, as is real estate outside Ontario. After a joint tenant dies, the survivor updates title with a Survivorship Application under Land Titles Act s. 123, which states that the applicant held the property as joint tenant with the deceased and gives the date of death.

For deaths on or after March 1, 1986, the application must also include a Family Law Act spousal statement. These required statements can only be made by a solicitor, who must sign them.

Whether a particular arrangement with an adult child really passes to the child outright, or is treated as held for the estate, depends on the facts, including what the parent intended. This is an area where a lawyer's review before you sign is important.

Problems adding a child to title can create

• Land transfer tax: there is no general exemption for gifts of land, and if the child takes on a mortgage, tax is payable on the amount owing at registration. Adding a family member other than a spouse depends on what consideration passes and whether beneficial ownership changes, so confirm with a lawyer.
• Capital gains: a gift of property, or a transfer to a non-arm's-length person for less than fair market value, is deemed to be made at fair market value, which can trigger a gain. A principal residence must be reported and designated on Schedule 3 to claim the exemption.
• Loss of control: the child becomes an owner, so you may need their cooperation to sell or mortgage. Any person interested in the land can apply to court for partition or sale.
• Unequal treatment: if you have several children, one child owning the home outright may not match what you want your will to say.
• The child's own life: the child's debts or relationship breakdown can complicate ownership. A lawyer can explain how.

Family law twists

If you are married and the home is your matrimonial home, you cannot dispose of or mortgage an interest in it unless your spouse joins in or consents, has released their rights in a separation agreement, or a court order authorizes it. A transaction that breaks this rule may be set aside.

There is also a rule that applies when a spouse dies owning a matrimonial home as a joint tenant with someone other than their spouse, such as an adult child. The joint tenancy is deemed severed immediately before death, so the right of survivorship does not operate. In other words, adding a child to a matrimonial home may not avoid the estate at all.

If someone dies without a will, a common-law spouse does not inherit under the Succession Law Reform Act, while a married surviving spouse may elect an equalization payment under the Family Law Act, filed no later than six months after the death. How these rules apply to you depends on your situation, so it is worth confirming with a lawyer.

What to do next

• Estimate the value of the estate to see what the Estate Administration Tax might actually be.
• Check whether the home is a matrimonial home and whether a spouse's consent is needed.
• Ask an accountant about capital gains before any transfer.
• Ask a lawyer about land transfer tax on adding the child and about other options, such as a will.
• Consider whether the estate qualifies for the simplified small estate process, available for estates valued at $150,000 or less.
• Put your decision in writing so your intentions are clear.

The tax saved may be smaller than the tax and legal costs the shortcut creates. A short conversation with a lawyer before changing title is usually worth it.

Frequently asked questions