# Parents Moving into Son's New House - Most Tax-Efficient Way to Give Money to Son?



## beeKeeper (Mar 13, 2016)

Hello,

My wife and I plan on moving into my son's house once he purchases a new one. I suspect we are not the only ones going down this route as we get older and a bit more fragile.
Thanks to the relatively "inexpensive" house prices in my son's locale and us merging our financial resources, it will likely be a mortgage-free house purchase though my son might need to use a line of credit to pay for the new house until both our houses are sold. 
Our preference would be to not make any more payments than necessary to any lending institutions outside our family after our houses are sold.
None of us are first-time home buyers.
We'd like our son to have majority ownership of the house with my wife and I having a very minor ownership stake.
None of us would have an ownership stake in any other properties.

Thinking of each family members' income tax responsibilities, what would be the most tax-efficient way to give our son money for the house purchase beyond the percentage of our formal ownership stake? 
Would it be as a cash gift, loan, or some other manoeuvre?

Thanks.


----------



## twa2w (Mar 5, 2016)

There is no tax on gifts in Canada. You may face some income tax if you sell stocks to fund the gift if you have a gain on the stocks. If you are talking about paying rent ad him being in a higher tax bracket


----------



## twa2w (Mar 5, 2016)

Oops posted before I finished and edit function does not work on tablet.
If you are talking about rent and son having to pay income tax on ental income, no need. You can give him money as a share of household expenses.
Otherwise you can give him as much money as you want toward the purchase.
How do you intend to register title. Joint tenants or tenants in common. Are there other heirs who would get some portion of of your ownership in the house when you go?


----------



## carverman (Nov 8, 2010)

twa2w said:


> There is no tax on gifts in Canada. You may face some income tax if you sell stocks to fund the gift if you have a gain on the stocks. If you are talking about paying rent ad him being in a higher tax bracket


True , my mother transferred her 50% ownership (joint tenant)stake in my home as a gift for the consideration of the sum of $2 to make it legal for real estate change of title.


----------



## carverman (Nov 8, 2010)

beeKeeper said:


> Hello,
> 
> My wife and I plan on moving into my son's house once he purchases a new one. I suspect we are not the only ones going down this route as we get older and a bit more fragile.
> Thanks to the relatively "inexpensive" house prices in my son's locale and us merging our financial resources, it will likely be a mortgage-free house purchase though my son might need to use a line of credit to pay for the new house until both our houses are sold.
> ...


cash gift is the easiest with no encumbrances..but then if you ever want to get your principle back, there is no legal framework to get it back.
If you wanted to get repaid by your son if he ever sells the house,then some kind of paperwork legally binding would be necessary..
otherwise it is simply a matter of trust within the family. Worse things can happen if the son marries and the wife assumes 50% ownership of the home by
co-habitatiion. On split, the ex wife may not always honour your son's part of the bargain initially arranged with him.


----------



## beeKeeper (Mar 13, 2016)

twa2w said:


> How do you intend to register title. Joint tenants or tenants in common. Are there other heirs who would get some portion of of your ownership in the house when you go?


Thanks for mentioning the title registration type. I didn't know about the different types. I'll have to look into that.
He's are only son and sole heir.

Thanks for the suggestions and comments to date. Much appreciated.


----------



## twa2w (Mar 5, 2016)

beeKeeper said:


> Thanks for mentioning the title registration type. I didn't know about the different types. I'll have to look into that.
> He's are only son and sole heir.
> 
> Thanks for the suggestions and comments to date. Much appreciated.


If he is only son and heir then I think joint tenants would work better but check with the lawyer

Joint registration is basically joint ownership with right of survivorship. Say house is joint in four names: you, spouse, son and DIL. If one of you passes the ownership transfers to the remaining three. You do have to take death cert to land titles/registry office to remove the name and pay a small fee. If son or DIL both predecease then you and wife get house and it will go in your will to your grandchildren but you continue to live in house. If you had to go to a care facility, your money would be tied up in the home and could be difficult to get out.


With Tenants in common you have a divided interest in the house. Your son and DIL would own say 70% and you and spouse would own 30%.
If you and your spouse die, you would have to pass your 30% in your will and it would be subject to probate. If your son died and DIL died their share would have to pass under their will. You would be dealing with their executor. If they have minor children and you are not the guardian, the will may say to sell their assets and hold the funds in trust for the kids. This may force you to sell the house, collect your 30% with the rest gong to the trust for the grandchildren. Could get messy.
OTOH, if you have to go to a care facility, you have some equity which your son could buy out.

Either way, make sure you and spouse and son and DIL all have wills, POAs and personal care POAs and set up to take into account how you have structured ownership. If you and your wife became incompetent under ether scenario, if son and DIL wanted to sell house, their hands would be tied without the right docs.

Another approach you could take is to register the house 100% in son and DIL name but you register a mortgage on title for the share you give him. I am no longer familiar with the rules in Ontario but IIRC, you have to set an interest rate and a repayment schedule. You, in theory would have to declare and pay tax on the mortgage interest but I think you could waive the mortgage interest. You could also make the mortgage forgivable on death which in effect it would be based on him being your only heir.
Again if for some reason they die before you, you may be out of the house with the mortgage balance only paid to you.

The other way I have seen this work is to register the house in their name and they assign you a lifetime interest in the house. They cannot sell without your permission and you can stay in the house as long as you live.

There are advantages/pitfalls to all approaches and many scenarios that could happen and you can't account for all eventualities but the Will POA and POAPC will help, I would also have a clear letter or agreement signed by all of you about how much you each contributed to the purchase. I think the joint ownership would work best for the widest range of circumstances but you know what they say about advice on the internet. We do not know all the details about you, or your son, the dynamics of your relationship with son and DIL, his marriage stability, family situation, debt situation and your life expectancy. Personally, I would check with your lawyer about the options I mentioned above - he will ask enough of the right questions and know how the Ontario rules work.

Good luck, I hope it all works out for you.


----------



## Mukhang pera (Feb 26, 2016)

beeKeeper said:


> Hello,
> Our preference would be to not make any more payments than necessary to any lending institutions outside our family after our houses are sold.


Your initial query is, at least to my pea brain, a bit opaque in wording. Is it the case that you and your wife now own a house, your son owns another, and both houses will be sold to buy one in which parents and son will live? If that is the plan, I also gather than you will be providing a significant portion of your home sale proceeds to your son to enable his purchase. Is that the case?

While true you can gift to him at no tax consequence, be careful. Gifts are irrevocable. While all may be rosy now, things can change. For example: He is not now married, he gets married, and you folks and his wife cannot stand each other. You want to move out of "his" house. A significant portion of your capital is tied up. You are trapped. Worse, he can say you gifted him said capital, so you are free to leave, but you recover nothing.

I'll give a short lesson on ways to hold title, then my advice.

Holding as "tenants in common" means that each owner has a separate interest from the others. The names on title might appear thus:

DAD, as to an undivided 25/100ths interest;
MOM, as to an undivided 25/100ths interest;
SON, as to an undivided 50/100ths interest.

If the title is expressed thus, you and your wife each have a 25% share, your son has half. Each of you is free to dispose of your interest as you see fit. Any of you can sell to anyone else. If any one of the 3 on title dies, the interest of that person does not pass automatically to the survivors; it passes to the estate of the deceased owner. If the deceased has a will, it will say who gets that interest. Otherwise it was pass as on an intestacy, under the Estate Administration Act or such legislation in your jurisdiction.

Holding as "joint tenants" carries with it the "right of survivorship". Borrowing from the example above, the title would look something like this:

DAD, as to an undivided 25/100ths interest;
MOM, as to an undivided 25/100ths interest;
SON, as to an undivided 50/100ths interest. 
"AS JOINT TENANTS"

In that case, if DAD dies, his share devolves to the other 2 owners. DAD's will will have no effect. If later, MOM dies, SON gets her share and then owns the whole.

If the magic words "JOINT TENANTS" appear in the conveyancing and title documents, then that regime prevails. If there is no special wording, holding as tenants in common is assumed by law.

So, unless I have misunderstood what is proposed here (which may well be), I would caution mom and dad against losing control of any significant amount of capital. The best way I see to protect it (without studying the matter too closely) is for dad and mom to appear on title as tenants in common in proportion to their contribution to the purchase. Eg., if the house is acquired for $300,000 and dad and mom put up $200,000, I would suggest that they appear as joint tenants as to an undivided 66.66% interest and son as holder of an undivided 33.3% interest. As between dad and mom on one hand, and son on the other, the interests are those of tenants in common. 

It is true that being joint tenants with your son simplifies succession and perhaps will avoid the need to probate and pay probate fees, but it makes things a bit more difficult to unravel should the happy relationship fall out of bed. Such things DO happen, with depressing frequency. One thing about being a joint tenant is you do not necessarily have the right to force a sale of the whole if things go sour. Mind you, not hopeless. Failing agreement you will likely be looking at an application under the Partition of Property Act (or its equivalent where you are).

There are other options. You could take a promissory note for your investment in the place and forgive it in due course. I would secure it with a mortgage, or, at least an equitable mortgage with deposit of title documents. That requires clear title to begin with.

These are but a few ideas and perhaps with a bit of a slant to BC law, but it does not vary much across Canada. Get some ideas here, but consult a local lawyer when the time comes. My liability insurance has lapsed.


----------

