To make it joint or not to make it joint, that is the question

Mourning

I have a lot of clients who ask me for advice on adding a child to their bank account (or house, or investment, or numerous other items) in order to avoid probate. The catch, however, is that sometimes, the cure is worse than the disease.

If you add your son on title to your house, it is true that it will pass to him without probate. However, if he goes bankrupt, your house is now up for grabs by his creditors. Same for if he divorces; now your house has to be equalized with his ex-spouse. Not a situation most of us would like to be caught in.

But let’s say you want to add a child who will never go bankrupt, and will never divorce. You can still face tax consequences. If you add your daughter on title, and the house successfully passes to her on your death, she will likely want to sell it since she may well already have her own house. Because it is not her principal residence, she will have to pay capital gains tax – which your estate would have been exempt from. There are also tax consequences to the transfer itself.

Joint ownership can be a good thing, but isn’t necessarily a good thing. If you are considering it, you should get some advice first from your lawyer and financial planner to ensure that you are truly helping yourself and your family.

For more information, check out this collection of articles on Advisor.ca.

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