Personal Finance

Avoiding probate fees and/or capital gains on principal property for my parent.

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[OP]
Sr. Member
Aug 16, 2005
717 posts
131 upvotes

Avoiding probate fees and/or capital gains on principal property for my parent.

I have a situation where my parent is a sole registered owner of a home. No mortgage.
My parent wants to add me to the title to avoid any potential probate fees or such upon death.

Some facts:
1. I own my own home (my principal residence). I also have an investment property.
2. my parent owns their home ( their principal residence)- no mortgage.
3. When my parent dies , hopefully as far from now as possible, I am planning to sell the home asap as I have no use for it and i do not want to rent it out.
4. I want to take advantage of my parent's principal residence exception to avoid capital gains etc.
5. I have two adult kids who have not purchased any property who live with us - eligible for 1st time home buyer. Either myself, my kids or one of them can be put on deed if it's more optimal.

Question. How do i do this to minimize my tax burden? When adding someone to a deed, how do we avoid capital gains on sale? Is it a Joint tenant or Tenants in common?

Thank you very much for any pointers you can offer.

Mark
20 replies
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Jan 15, 2017
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Let's say the home is worth $800K. If your parent lives 10 more years, what might it's value be in 2032? Let's say $900K.

If your parent remains the sole owner, then in 2032 only the probate fee is payable: $50 (on 1st $50K) + 1.5% x $850K = $50 + $12,750 = $12,800.

If you go on title, you avoid probate fees by having the property transfer to you, but you will owe capital gains on $50K (50% of increased value), which works out to 50% x $50K x 40% (assumed MTR) = $10,000.

Not worth doing this to save $2,800.
[OP]
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Aug 16, 2005
717 posts
131 upvotes
Thanks for the super quick response. Much appreciated
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Feb 8, 2014
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If they are living in the home i don't think there is any capital gains tax owing.
That said i'm not 100% sure on this.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people
[OP]
Sr. Member
Aug 16, 2005
717 posts
131 upvotes
Also, I understand the capital gains process. what if i or my kids retain 1% ownership ? is that possible? I also read somewhere in respect a strategy of creating a bare trust agreement indicating that, for tax purposes, the parent is the sole beneficiary of the family home.

How does that even work? confused.
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markdweasel wrote: Also, I understand the capital gains process. what if i or my kids retain 1% ownership ? is that possible? I also read somewhere in respect a strategy of creating a bare trust agreement indicating that, for tax purposes, the parent is the sole beneficiary of the family home.

How does that even work? confused.
You need to speak with a lawyer.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people
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markdweasel wrote: Also, I understand the capital gains process. what if i or my kids retain 1% ownership ? is that possible? I also read somewhere in respect a strategy of creating a bare trust agreement indicating that, for tax purposes, the parent is the sole beneficiary of the family home.

How does that even work? confused.
Hmmm, I hadn't really thought of going on title (tenants in common) with only a 1% share.

A half-hour consult with a lawyer might be worthwhile...or ask former LPC MP Mac Harb who retained a 1% share on - as I recall - the place he was renting in Ottawa.
[OP]
Sr. Member
Aug 16, 2005
717 posts
131 upvotes
taxrage wrote: Hmmm, I hadn't really thought of going on title (tenants in common) with only a 1% share.

A half-hour consult with a lawyer might be worthwhile...or ask former LPC MP Mac Harb who retained a 1% share on - as I recall - the place he was renting in Ottawa.
Not sure if he'll take my calls. I wasn't even in his riding :).
Deal Fanatic
Jan 15, 2017
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Generally a bad idea and not recommended.

The largest risk with this is that whenever you add someone to the title of a home you are giving them ownership of that home. Ownership of the home comes with rights, one of which is that if you later change your mind it is difficult to undo.

Here are links from a NL Estate Lawyer on why this strategy is almost always a bad idea:

https://estatelawcanada.blogspot.com/20 ... solid.html

https://estatelawcanada.blogspot.com/20 ... house.html
Member
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Feb 12, 2016
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Great question OP. I have a question for you. If you live in the house with your parent and don't plan on selling it once they pass away. Is it better to be on the land title or be on the will which would say you inherit the home? Do you have to pay probate in either scenario?
[OP]
Sr. Member
Aug 16, 2005
717 posts
131 upvotes
dealhawk1 wrote: Great question OP. I have a question for you. If you live in the house with your parent and don't plan on selling it once they pass away. Is it better to be on the land title or be on the will which would say you inherit the home? Do you have to pay probate in either scenario?
in this scenario, if this house is your primary residence, I believe it is best to be a joint tenant on the title/deed as you will automatically become owner once your parent passes away. You will save lawyer and probate fees. Note that there are several points raised above in respect to why its a bad idea on certain circumstances ( like additional siblings, will contentions etc).
Deal Fanatic
Jan 21, 2018
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Don't forget potential property tax implications. If one or more of the owners does not live in the home, then it may be ineligible or only partly eligible for any property tax discount for owner living in the home or for senior discount.

I know someone who had their lawyer draw up an undated document transferring ownership of a property from parent to child, to be dated the day of death. Intent to avoid probate fee and any tax implications to that date. They didn't have to use it (parent sold and moved out), and other lawyers have said they don't think that would be legal if questioned - but that might depend on whether anyone questioned it.
[OP]
Sr. Member
Aug 16, 2005
717 posts
131 upvotes
So, bottom line, if i join to the deed @50% i will be subjected to Capital gains on 50% of the increased value from effective date to date of sale. Is there an option where these capital gains are minimized ( 1% ownership) where the deed will fall to me upon death and capital gains will be at a minimum? I understand the undated transfer document will suffice but I'm less inclined to do something that may come and bite me back in the butt. ( there's no issue with questions from relatives but possibly from bank/etc)
Member
Jan 13, 2008
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Toronto
markdweasel wrote: So, bottom line, if i join to the deed @50% i will be subjected to Capital gains on 50% of the increased value from effective date to date of sale. Is there an option where these capital gains are minimized ( 1% ownership) where the deed will fall to me upon death and capital gains will be at a minimum? I understand the undated transfer document will suffice but I'm less inclined to do something that may come and bite me back in the butt. ( there's no issue with questions from relatives but possibly from bank/etc)
I don't know what province you are in but in Ontario you can only bypass probate with join tenancy NOT tenants in common (each owner has a DIVIDED percentage interest in ownership of the property).
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markdweasel wrote: So, bottom line, if i join to the deed @50% i will be subjected to Capital gains on 50% of the increased value from effective date to date of sale. Is there an option where these capital gains are minimized ( 1% ownership) where the deed will fall to me upon death and capital gains will be at a minimum? I understand the undated transfer document will suffice but I'm less inclined to do something that may come and bite me back in the butt. ( there's no issue with questions from relatives but possibly from bank/etc)
If the owners or their children (cost sharing arrangement) live in the home then it is capital gains exempt as it is their principal residence.
When you add people who don't live there the principal residence exemption does not exist for them. Whether the parent still living there has their share of principal residence exemption is above my pay grade.

Also if the parents go to a nursing home then the house will either need to be sold or rented (to family, friends, strangers etc). This has new tax implications you are not considering.

You are fixated on this idea which is why i suggest a real lawyer who can explain why fixating on a bad idea will screw you over.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people
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Mar 25, 2012
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markdweasel wrote: I have a situation where my parent is a sole registered owner of a home. No mortgage.
My parent wants to add me to the title to avoid any potential probate fees or such upon death.

Some facts:
1. I own my own home (my principal residence). I also have an investment property.
2. my parent owns their home ( their principal residence)- no mortgage.
3. When my parent dies , hopefully as far from now as possible, I am planning to sell the home asap as I have no use for it and i do not want to rent it out.
4. I want to take advantage of my parent's principal residence exception to avoid capital gains etc.
5. I have two adult kids who have not purchased any property who live with us - eligible for 1st time home buyer. Either myself, my kids or one of them can be put on deed if it's more optimal.

Question. How do i do this to minimize my tax burden? When adding someone to a deed, how do we avoid capital gains on sale? Is it a Joint tenant or Tenants in common?

Thank you very much for any pointers you can offer.

Mark
Short answer: This is not possible, as you live in your own home in your principal residence, and your parents have used their home as their principal residence. Unless you sell your home prior to their death, move in with your parents, rent your parents' and your joint home to them (for a fee or no fee), and use your parents' and your joint home as your principal residence, capital gains taxes are unavoidable.

Cheers,
Doug
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dmehus wrote: Short answer: This is not possible, as you live in your own home in your principal residence, and your parents have used their home as their principal residence. Unless you sell your home prior to their death, move in with your parents, rent your parents' and your joint home to them (for a fee or no fee), and use your parents' and your joint home as your principal residence, capital gains taxes are unavoidable.

Cheers,
Doug
Incorrect, if parents live in their own home, OP lives in their own home, parents pass away, OP sells their home then there should be little to no capital gains.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people
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Quentin5 wrote: Incorrect, if parents live in their own home, OP lives in their own home, parents pass away, OP sells their home then there should be little to no capital gains.
Still incorrect, sorry. OP can only have one principal residence. Timing of sales would be essential.
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dmehus wrote: Still incorrect, sorry. OP can only have one principal residence. Timing of sales would be essential.
If the OP keeps the home then yes capital gains would accrue on he increased value.
If they sell the house right away then there should not be much gains.
These days the value might drop instead of rise.
In fact in Rand McNally they wear hats on their feet and hamburgers eat people

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