# Mum's condo in joint names with daughter - pitfalls?



## yyzvoyageur (Apr 10, 2009)

My wife's mother has purchased a new condo and wants to put it in joint tenancy with her daughter (my wife). My wife is an only child and will be the only beneficiary of her mother's estate. For now, the condo will be her mother's principal residence. In the future it's possible that she'll move in with us and we'll rent the condo out for income.

Are there any potential pitfalls (taxation or otherwise) that we should be aware of when deciding whether to list ownership as joint tenants or solely in my mother-in-law's name?


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## Addy (Mar 12, 2010)

I'm also curious about this as we are considering buying investment land and would like to put it in my name and my daughters name but she is not 18 yet so I'm not sure if a minor can be on a deed. Looking forward to replies!


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## MoneyGal (Apr 24, 2009)

I'd like to know what the rationale is for putting the daughter's name on title. What is mom avoiding and what benefit is daughter receiving as a result of this?


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## MoneyGal (Apr 24, 2009)

OK, here are a few potential pitfalls (because you asked for them):

- one half of any future capital gains will accrue to the daughter. Because the property is mom's principal residence and the daughter lives elsewhere, the principal residence exemption will be lost for the daugther's share of any future increase in value of the home. 

- the daughter's share becomes subject to claims by creditors. And, in the event of maritial breakdown (that would be with you!) the daughter's share may be included in assets to be divided.


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## yyzvoyageur (Apr 10, 2009)

MoneyGal said:


> I'd like to know what the rationale is for putting the daughter's name on title. What is mom avoiding and what benefit is daughter receiving as a result of this?


Probably to avoid probate, but I'm only guessing here. I don't think it's a good idea personally.


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## MoneyGal (Apr 24, 2009)

That's the reason people usually give. But it is often not even beneficial financially. Tell mom she can avoid probate on the asset by giving it to the daughter before her death. 

One quick way to get a feel for the impact of probate vs. the loss of the CG exemption is to imagine that the house gains in value by some amount ($50K, $100K, $200K, etc.) and then calculate the daughter's CG tax payable versus probate fees payable on the house. Probate fees in BC are 0.6% on estates worth between $25K - $50K and 1.4% on estates with values in excess of $50K. (Just use daughter's tax situation in effect today unless you expect it to change dramatically in the future...this can be a starting point and then you can vary things to see the impact of different tax rates, etc.)

So if the house appreciates in value by $50K (for example), causing the daughter to take into income $25K, what is the tax she'd need to pay versus the estate fees on the house?


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## Just a Guy (Mar 27, 2012)

MoneyGal said:


> That's the reason people usually give. But it is often not even beneficial financially. Tell mom she can avoid probate on the asset by giving it to the daughter before her death.


I believe this would trigger the Capital Gains which the mother would be responsible for...but there is no CG on a primary residence, so if she moved in with you and kept the house as a rental, the water gets a little murky.

If they are joint, and the place is converted to a rental, the property goes to the survivor, outside of probate. CG isn't triggered at death, it's when the property sells I believe, but you could check with an accountant.


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## ghostryder (Apr 5, 2009)

MoneyGal said:


> OK, here are a few potential pitfalls (because you asked for them):
> 
> - one half of any future capital gains will accrue to the daughter. Because the property is mom's principal residence and the daughter lives elsewhere, the principal residence exemption will be lost for the daugther's share of any future increase in value of the home.



There is no tax liability unless the daughter is a beneficial owner of the property. Being on title is not sufficient to connect the daughter to the property for any tax liability.

As long as the daughter does not contribute any capital to the acquisition of the asset it is unlikely that she could be considered a beneficial owner.


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## cardhu (May 26, 2009)

Just a Guy said:


> I believe (in response to MG: "Tell mom she can avoid probate on the asset by giving it to the daughter before her death.") this would trigger the Capital Gains which the mother would be responsible for...but there is no CG on a primary residence, so if she moved in with you and kept the house as a rental, the water gets a little murky.


Not really ... properties with only a partial PR exemption are pretty routine ... and that would only be the case if mom retained ownership after converting to rental ... if she gifted the house, in its entirety, at the same time that she moved in with her daughter, there would be no murk whatsoever ... all cap gains up to that moment would be 100% exempt, as PR, and all cap gains after that moment would be 100% exposed to tax, in the daughter’s hands, upon the later sale of the property. 

The question that arises in that case is ... if she is moving in with her daughter because she is no longer competent, then would such a gift be legal? ... there’s a potential for catch 22 in there. 



> _If they are joint, and the place is converted to a rental, the property goes to the survivor, outside of probate._


Whether it was converted to a rental has nothing to do with it ... the property would go to the survivor, outside of probate, either way. 



> _CG isn't triggered at death, it's when the property sells I believe, _


Yes, CG would be triggered at death, on the deceased's share. 



ghost said:


> There is no tax liability unless the daughter is a beneficial owner of the property. Being on title is not sufficient to connect the daughter to the property for any tax liability.


I think this is still a bit of a grey area ... though I agree that being on title is not _necessarily_ sufficient ...


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## MoneyGal (Apr 24, 2009)

Thanks for your comment. You are right that being on title alone is likely not sufficient -- _but it really depends on what mom's intentions were at the time the asset was placed in joint tenancy_. 

Most times the asset is simply transferred to joint tenancy and no further comment is made by the parent (in this case). But it's complicated. If mom retains the beneficial ownership of the asset (and daughter has only legal ownership), then she's not going to avoid probate in any case, because the asset is (beneficially) owned by mom and passes to the estate, and THEN to the daughter. But if mom (intends to) transfer beneficial, not just legal title, to the daughter ("to avoid probate") now the CGE on the daughter's share is de facto gone. So if mom says "I am putting this asset in joint tenancy so house will pass to my daughter upon my death outside of my estate" then the courts may and do find that the daughter is a beneficial owner of the property, there was a deemed disposition, and daughter owes a tax bill. 

Here is a long-ish but good article on joint tenancy: http://www.cle.bc.ca/PracticePoints/LIT/08 13 Jt Tenant.pdf


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## OhGreatGuru (May 24, 2009)

MoneyGal said:


> ....If mom retains the beneficial ownership of the asset (and daughter has only legal ownership), then she's not going to avoid probate in any case, because the asset is (beneficially) owned by mom and passes to the estate, and THEN to the daughter. ...


I have to disagree with you. If legal ownership is JWROS, the asset passes outside of the estate and is not subject to probate. The issue of "beneficial vs legal" ownership only affects how the asset is treated for income tax purposes.

In response to why the OP would want to do this, it isn't just the Probate fees, it's the attendant legal fees and the delays in settling an estate.


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## MoneyGal (Apr 24, 2009)

OGG: I am taking my lead from the link I provided (although I have seen the same thing said many times in deeper considerations of joint tenancy issues). Here's a quote:

_When analyzing the deceased's intention at the time of creation of the joint tenancy, the personal representative (and their lawyer) should consider whether the deceased intended to transfer simply the “legal” title or also transfer the “beneficial” ownership of property. Clients are not always going to know or understand the significance of the question, so some explanation is required. Two examples serve to illustrate the point.

(a) Consider parents who transfer their principal residence into “joint tenancy” with their children who do not reside in the home with them. A principal residence is subject to the principal residence exemption from tax on any capital gains. *If the child received the “beneficial” interest in the property (and not simply the “legal” title), future gains on the child’s portion of the title will be subject to tax. *If the principal residence had been left in the parent’s name, the children’s portion of the capital gain would not attract tax. Similarly, if the child has creditors, or a judgment is brought against the child, the child’s interest in the property will be subject to the claims of the creditor. To avoid this result, the parents could (and should) transfer the “legal” interest only.

(b) Consider a parent who transfers a revenue property or stock portfolio. If the parent intended to transfer both the “legal” and the “beneficial” ownership, then the transfer would have triggered a “deemed disposition” for income tax purposes and the payment of tax on the deemed capital gain at the time of the transfer. This may or may not be desirable. If the parent did not want this result then the parent should have transferred the “legal” interest only._

Beneficial and legal are not simply concepts for income tax determination. *Beneficial ownership does not pass on death by right of survivorship*, only the “legal” interest does. The beneficial interest becomes part of the estate and is subject to probate fees.

So if mom wishes to avoid probate tax, she must transfer both beneficial and legal ownership to daughter. But if she does this, then daughter is a "true" joint owner and there has been a deemed disposition and the CGE is lost for daughter's share of the property. It is unlikely that a "home made" estate planning solution will accurately and completely distinguish between legal and beneficial ownership. Relying on a sense of what CRA may do without clearly specifying the intent is risky.


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## Toronto.gal (Jan 8, 2010)

MoneyGal said:


> 1. one half of any future capital gains will accrue to the daughter. Because the property is mom's principal residence and the daughter lives elsewhere, the principal residence exemption will be lost for the daugther's share of any future increase in value of the home.
> 
> 2. the daughter's share becomes subject to claims by creditors.


1. Of course that makes sense and it now makes me wonder why a friend of mine [with 2 lawyer children], is not aware of this. She recently mentioned to me that she'll be the sole beneficiary of her mother's estate and that her name is on the house title, so that means she'll have to pay capital gains on her share of the property instead of just probate fees [if I understood correctly]. 

2. Exactly!


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## OhGreatGuru (May 24, 2009)

MoneyGal said:


> OGG: I am taking my lead from the link I provided (although I have seen the same thing said many times in deeper considerations of joint tenancy issues). Here's a quote:
> 
> Beneficial and legal are not simply concepts for income tax determination. *Beneficial ownership does not pass on death by right of survivorship*, only the “legal” interest does. The beneficial interest becomes part of the estate and is subject to probate fees.
> 
> ...


MG: Hardly any of the cases I have found on the web concerning the pitfalls of beneficial vs legal ownership in JWROS property involved CRA or a provincial probate office challenging the validity of benefical transfer on death. They generally seem to involve estates where there were other beneficiaries besides the joint account holder, who argued that the transfer was contrary to the deceased's wishes, and that the property should have gone to the estate, to be shared with other beneficiaries. There was one case quoted in an AIM TrimArk Bulletin _Oolup vs. the Queen, 2003_, where CRA did take someone to court, but CRA actually lost, and the surviving account holder was ruled as having received ownership on the death of the grandmother.

in spite of some cautionary words I have seen in some bulletins, beneficial ownership routinely passes to survivors on death. It happens all the time with JWROS investments and property. What may be challenged is whether it was the deceased's intent to do this. In this instance the OP reports the daughter is sole beneficiary, so there should be no problem.


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## MoneyGal (Apr 24, 2009)

OhGreatGuru said:


> MG: None of the cases I have found on the web concerning the pitfalls of beneficial vs legal ownership in JWROS property involved CRA or a provincial probate office challenging the validity of benefical transfer on death. They all seem to involve estates where there were other beneficiaries besides the joint account holder, who argued that the transfer was contrary to the deceased's wishes, and that the property should have gone to the estate, to be shared with other beneficiaries.
> 
> Beneficial ownership routinely passes to survivors on death. It happens all the time with JWROS investments and property. What may be challenged is whether it was the deceased's intent to do this. In this instance the OP reports the is sole beneficiary, so there should be no problem.


I'm not sure where you are looking, and I am not intending to be argumentative, but the Pecore and Brooks cases at the Supreme Court (in 2007) clearly ruled that beneficial ownership does NOT pass to adult children with joint tenancy in the absence of clear and specific intention. The issue is not whether there is another beneficiary who might challenge whether legal and beneficial ownership passed to the daughter - the issue is that the SCC has ruled that "the presumption of advancement" no longer exists. 

See, for example: http://rulelaw.blogspot.ca/2007/05/supreme-court-of-canada-abolishes.html

http://www.lawyersweekly.ca/index.php?section=article&articleid=476

Quoting from the second link:

_In a pair of noteworthy estates rulings written by Justice Marshall Rothstein, all of the judges except Justice Rosalie Abella agreed that in cases where a parent’s actual intent at the time of the gratuitous transfer to an adult child is unknown, the presumption of advancement no longer applies.

Specifically, judges should no longer presume that a parent who sets up with an adult child a joint bank account or joint investment account, with a right of survivorship, intends to gift his or her beneficial interest in the joint property to their offspring when that parent dies._


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## yyzvoyageur (Apr 10, 2009)

OhGreatGuru said:


> MG: Hardly any of the cases I have found on the web concerning the pitfalls of beneficial vs legal ownership in JWROS property involved CRA or a provincial probate office challenging the validity of benefical transfer on death. They generally seem to involve estates where there were other beneficiaries besides the joint account holder, who argued that the transfer was contrary to the deceased's wishes, and that the property should have gone to the estate, to be shared with other beneficiaries. There was one case quoted in an AIM TrimArk Bulletin _Oolup vs. the Queen, 2003_, where CRA did take someone to court, but CRA actually lost, and the surviving account holder was ruled as having received ownership on the death of the grandmother.
> 
> in spite of some cautionary words I have seen in some bulletins, beneficial ownership routinely passes to survivors on death. It happens all the time with JWROS investments and property. What may be challenged is whether it was the deceased's intent to do this. *In this instance the OP reports the daughter is sole beneficiary, so there should be no problem.*


That's what I'm thinking too. I can't imagine CRA is going to investigate whether the intention was to transfer beneficial or just legal interest. How would one prove that anyway? I've seen cases within my family where bank accounts and mutual funds were placed in joint names between parent and child to "avoid probate". When the parent died, the child presented a death certificate at the bank branch and names were changed on the accounts (to child and child's spouse). Simple. No questions asked by the bank. No questions asked by CRA. No probate involved with those assets. If other beneficiaries are involved I see how this beneficial vs. legal interest could become important.


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