Bare Trust Rules When a Parent Dies With a Child on Title in Canada

Parents often add a child to the title of a home or an account to help with a mortgage or to make things easier later. When the parent dies, the family may ask whether the property belongs to the estate or to the child, and what the final tax return must show.

The answer turns on who was the beneficial owner. This article explains the bare trust idea and where to get advice on death-related tax rules.

This article covers Canadian federal tax law, which applies in every province.

Legal owner versus beneficial owner

A bare trustee is an agent who has no significant powers, cannot act without the beneficiary's instructions, and only holds legal title. The beneficiary is the beneficial owner and the trustee is the legal owner. A bare trust is generally treated as not being a trust for the Income Tax Act, with some exceptions.

If a child was on title only to hold it for the parent, the child may be the legal owner while the parent is the beneficial owner. If the child was truly a joint owner, the picture is different. Whether a bare trust exists is a question of fact, and the CRA suggests consulting a legal advisor if unsure.

Who reports the income and gains

For a reportable bare trust, all income, capital gains and capital losses from the trust property should be reported on the beneficial owner's tax return. The trustee does not report them on the trust's T3.

This is why the question of who was the beneficial owner matters on death. How the tax rules apply at death, including the final return, depends on the property and the facts, so an accountant should review it.

Principal residence and a child on title

Under the exceptions to the deemed-trust rule, s. 150(1.31)(b) applies where the legal owners are related individuals and the property is real property that would be the principal residence of one or more of them. The CRA says this covers a parent on title to allow a child to obtain a mortgage.

For related persons, the CRA includes individuals connected by blood relationship, marriage, common-law partnership or adoption. The CRA's guidance does not address an adult child on title as its own example.

For the principal residence exemption, ownership includes being a beneficial owner of the property, whether alone or jointly with another person. The beneficial owner behind a bare trust can therefore look to the exemption. The exemption has further conditions, so confirm how it applies to the home.

Reporting dates to keep in mind

Bare trusts need not file a T3 or Schedule 15 for taxation years ending on or after December 31, 2024 and before December 31, 2026. Reportable bare trusts are subject to the trust reporting rules for years ending on or after December 31, 2026.

If the arrangement ends on the parent's death, whether any later reporting applies depends on the facts.

What to do next

• Find the title documents and any written agreement showing why the child was added.
• Record who paid for the property and who used it.
• Ask whether the child could act without the parent's instructions.
• Check whether the property was a principal residence.
• Ask an accountant about the final return and a lawyer about the estate and title.

Frequently asked questions