It’s spring in Ontario, when the minds of responsible owners turn to the orderly and cost-effective transfer of the beloved family cottage to the next generation. One common strategy is to add adult children to title of the property as joint tenants. This allows for a seamless transfer upon death and avoids Estate Administration Tax (“EAT” or, colloquially, “probate fees”), which amounts to approximately 1.5% of the property’s value.
However, this approach requires careful thought. Once a child is added as a joint tenant, they gain full ownership rights. This means the parent can no longer sell, mortgage, or renovate the cottage without the child’s consent.
Additionally, the law presumes that a gratuitous transfer from parent to adult child is not a gift, but rather that the child holds the property in trust for the aging parent to facilitate management of the parent’s affairs. In other words, the property would be presumed to belong to the parent’s Estate upon the death of the parent and EAT would be payable – defeating one of the main reasons for the transfer.
Other considerations include tax implications (such as capital gains on future sales if it’s a second property for the child), and the possibility that the cottage could be exposed to the child’s creditors or a claim by the child’s spouse in the event of a separation. If only one child is added to title, this could also create friction with siblings.
In short, while avoiding probate fees is appealing, the risks and unintended consequences of joint tenancy often outweigh the savings. Our expert team at the Ross Firm can assist you with your estate planning issues. Contact our office at [email protected] to set up your consultation.
Disclaimer: the above blog post does not constitute legal advice and is for information purposes only. We strongly recommend obtaining legal advice with respect to any legal issues.
