Often we see clients who instruct us to add their adult children to their deed in an attempt to avoid probate. When you die and property is in your name alone, that property passes to your estate. A will contains your instructions on what you want to happen to the stuff that passes to your estate. But having a will does not mean you can avoid probate.
In Nova Scotia, all of the assets that pass to your estate are subject to probate tax, which is roughly 1.7% of the value of the asset. So if your home is worth $200,000, your estate will pay $3400 in tax to the Probate Court.
“Probating an estate” means that your Executor will make an application to the Probate Court for permission to move the assets out of your estate to the beneficiaries in your will. Once the Court grants permission for the Executor to probate the estate the Court will police this process and requires that the Executor takes certain steps. It may take years to probate an estate, depending on many factors such as how quickly real estate can be sold, how quickly final tax returns and clearances can be obtained from CRA, and whether there are disputes among beneficiaries. Most Executors will hire a lawyer to help them navigate the probate process.
So it’s no surprise that people want to save their estate time and money by avoiding the probate process altogether by adding their child to the deed as a joint owner. If two people own a property together and they are called “joint tenants” on the deed if one person dies the other person automatically becomes the sole owner without probate involvement.
But there are cons to adding an adult child to your deed. Here are a few to consider:
Capital Gains -if you add your child to your property now, and you live 10 more years and your property increases in value, your child (if they own their own home) may have to pay capital gains tax on the increase in the value of your home when you die. If your property stays in your name and goes to your estate, your estate will pay the capital gains tax for you. You likely make less than your adult child, so that will be a tax savings to pay the gain in the estate versus your child’s name.
Divorce -if you add your child to title and they divorce, their equity in your property could be subject to division between your child and their estranged spouse.
Bankruptcy -if you add your child to title and they declare bankruptcy their equity in your home may be used by their Trustee to pay their creditors
Incompetency -if you add your child and they have an accident and as a result are unable to manage their own affairs, unless your child has a power of attorney you cannot sell the property or finance the property without making a court application to have a guardian appointed to deal with your child’s interest
Loss of Control -if you want to sell/ mortgage the property and your child doesn’t agree, your hands are tied unless you make a court application.
Waiting until you are near the end of your life will minimize the risk of these things happening. But not all of us know how much time we have left. The best thing to do is meet with a lawyer to discuss your particular situation, with the knowledge that as your situation changes it might make more sense to take steps like these to try to avoid probate.