Probate fees of 1.4 per cent on the gross value of assets located within B.C. passing through an estate are payable to the B.C. government when an estate is probated. To try and avoid these fees, people often transfer assets into joint tenancy with one or more of their children. Trying to avoid probate fees may seem like a good idea, but joint ownership can create a whole host of problems for people, as described below. These problems are far more costly than a mere 1.4 per cent tax.
Capital gains issues
The transfer of any property in Canada results in capital gains tax becoming payable on the increase in value since the property was acquired, (except in certain cases where exemptions are available, such as principal residence and exemptions for active small businesses/family farms, but not for investment property).
The transfer of an investment asset (for most adult children their parent’s property will be their ‘second’ property and thus considered an investment property) into joint names has the unintended tax consequence of triggering capital gains tax, which tax would be payable at the time your next return is due. The probate fee only becomes payable on death, so transferring assets into joint names may in fact accelerate a payment of capital gains taxes in a far greater amount than the probate fees you were seeking to avoid, which may not have become payable for many years.
Claims by creditors and ex-spouses
Adding your child’s or children’s name to title to your property, bank account or stock portfolio can have the unintended effect of making those assets subject to claims by creditors or ex-spouses of the children who were added to title. Your asset becomes their asset and can be exposed to their misfortunes.
Loss of control
Another issue that gives rise to concern for some people is the loss of some control over their assets which can arise with joint ownership, and in particular, with real estate. Although a joint bank account or a joint investment account only requires the signature of one party to deal with the assets or remove assets, the transfer or mortgaging of real estate requires the signature of all the registered owners.
Alternate strategies
Although a transfer into joint names may work well in a limited number of cases, with proper trust declarations or statements of intention, other alternate strategies can be employed, such as joint partner trusts or alter ego trusts. Seek the advice of an estate planning specialist to discuss the alternatives before you transfer those assets.
