Q: I am getting older and thinking of my kids and their inheritance. My house is my most valuable asset and it was mentioned to me by a friend that to avoid estate taxes on the value of my home when I pass away, I can transfer the ownership to my children and myself. Is this a good suggestion?
A: There is no problem doing the actual transfer to one or more of your children and yourself, which when held jointly, allows for a ‘right of survivorship’ thereby transferring your ownership to the remaining owners when you die without becoming an estate asset.
This of course means there is no estate tax payable on the value of the house. However, there are some concerns that you need to consider before you take this step.
1. If you place one or more of your children on the title to your house and they have their own home, the increase in the value of the property from when they were transferred onto title to the date of your death is taxable on their portion under capital gains tax (it is not their primary residence). If you plan on living a good long time from now, this could lead to some serious tax consequences for your kids when you die.
2. If there is any outstanding mortgage or line of credit on your home, you must pay Land Transfer Tax on the portion attributable to your child’s ownership.
3. If you are transferring the house to just one of your children, you should specifically state in your Will that the home should be sold and the value of the transaction be split between your children, otherwise, the owner/child may be tempted to claim it as their own and cause huge strife amongst your beneficiaries.
Indeed, transferring the title to your kids and you is a form of estate planning that can be effective in reducing the estate tax burden but it should be entered into with care and proper tax/legal advice.
Jeffrey Cowan is the principal of Cowan Law and can be reached at jeff@cowanlaw.ca.
