Should You Add Your Child’s Name to Your Property Deed?

Pros, Cons, and Tax Implications

Many parents consider adding their child’s name to the title of their property as a way to simplify estate planning, avoid probate, or pass on wealth. While it might seem like an easy solution, there are important tax, legal, and practical implications to consider. Whether the property is your principal residence or an investment property, the decision can have long-term consequences.

Adding Your Child to the Deed of a Non-Principal Residence

If the property is not your primary residence, transferring ownership (even partially) to your child can trigger capital gains tax and other complications:

Pros:

1. Avoiding Probate:

   • Upon your death, joint ownership with "right of survivorship" can allow the property to pass directly to your child, bypassing probate. This can save time and probate fees.

2. Simplified Transfer:

   • Joint ownership makes it easier for the child to assume full ownership after your passing without waiting for estate administration.

Cons:

1. Immediate Tax Consequences:

   • Adding your child to the deed is treated as a deemed disposition by the Canada Revenue Agency (CRA). This means you’re considered to have sold the portion of the property being transferred at its fair market value, which could trigger capital gains tax on any appreciation since the property’s purchase.

2. Future Capital Gains for the Child:

   • The child’s share of the property may be subject to capital gains tax when sold, unless it qualifies as their principal residence—a challenge if they already own one.

3. Loss of Control:

   • Once your child becomes a co-owner, you cannot sell, refinance, or make decisions about the property without their consent.

4. Creditor Risks:

   • If your child has financial difficulties, their creditors could place a claim on their share of the property.

Adding Your Child to the Deed of a Principal Residence

For a principal residence, the Principal Residence Exemption (PRE) provides significant tax benefits, but adding a child to the deed can complicate matters:

Pros:

1. No Immediate Tax Liability:

   • As long as the property qualifies as your principal residence, the PRE eliminates capital gains tax on the transferred portion when you add your child’s name.

2. Probate Avoidance:

   • Joint ownership with the right of survivorship allows the property to bypass probate, saving time and probate fees.

Cons:

1. Loss of PRE on Child’s Share:

   • If the child doesn’t use the property as their principal residence, any future appreciation of their share is subject to capital gains tax.

2. Future Tax Implications:

   • When the property is sold, the PRE only applies to your share for the period you lived there. The child’s share will be subject to capital gains tax unless they meet the criteria for the PRE.

3. Loss of Control:

   • Similar to non-principal residences, you lose full autonomy over the property once the child is added as a joint owner.

4. Potential Family Disputes:

   • If you plan to divide your estate equally among multiple children, adding one child to the deed can cause tension or disputes among heirs.

5. Creditor Risks:

   • The child’s financial issues or divorce proceedings could lead to claims on their share of the property.

Better Alternatives to Adding Your Child to the Deed

Testamentary Transfers:

• Keep full ownership during your lifetime and transfer the property through your will. While the property will be subject to probate, this ensures you maintain control and the estate can handle any tax implications.

Family Trusts:

• Place the property in a trust, which can allow for controlled management while reducing tax liabilities and ensuring the property is distributed according to your wishes.

Gifting the Property Upon Death:

• Use a transfer deed that becomes effective upon your passing, avoiding probate without triggering immediate tax implications.

Key Takeaways

Adding your child’s name to your property deed might seem like a convenient solution, but it often creates more problems than it solves. Immediate tax liabilities, loss of control, and potential family disputes are just a few of the risks.

Before making any decisions, consult with a tax advisor or estate planning professional. They can help you explore alternatives, such as trusts or testamentary transfers, to ensure your wishes are honored while minimizing tax exposure and legal complications.

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