There are a number of other potential negative consequences that should be considered before adding an adult child to title. The following list should not be considered exhaustive and is limited to real estate and assets held in nonregistered accounts. Each situation is different, so any outcome will depend on the specific facts of each case.
- The asset may become available to the creditors of the new joint owner. Creditors could include CRA, in case of any unpaid tax obligations;
- The ‘true’ beneficial owner may not be able to make changes to the account without obtaining the consent of the new joint owner;
- A joint owner could sever the asset into independent shares (i.e., tenants in common) without the knowledge or consent of the original owner;
- A joint owner may have to pay tax on their portion of future investment or rental income;
- A portion of the assets in a joint account may be subject to a deemed disposition for tax purposes;
- The ‘true’ beneficial owner may not be able to claim the principal residence exemption on the entire property because they do not appear, on title, to own the whole property;
- The adult child may claim that they were ‘gifted’ the asset, which generally results in litigation brought by siblings, which commonly depletes estate assets and causes relationship breakdown; and
- The estate may not have enough funds to pay debts and taxes if the largest assets transfer outside of the estate. Income tax on RRIF accounts, for example, have to be paid by the estate if the spouse is not the beneficiary, while the entire RRIF account balance will be transferred to the RRIF beneficiary/ies at its gross value.
Contact Geoff Pollock & Associates regarding your estate planning
We will be happy to discuss your specific situation, and how a joint ownership may impact your estate plan. Other strategies may also be available to facilitate goals and objectives. Power of attorney for property, for example, could assist with managing assets or certain transactions. Insurance segregated funds for non-registered investments could be used to designate beneficiaries, thus allowing for expedited asset distribution after death and bypassing EAT. You can contact us via email or give us a call at 416-777-0088.
