Adding adult children to your property title may avoid BC probate fees, but it carries significant tax, family law, and legal risks. Learn what to consider before changing ownership.
Many BC families explore adding adult children to the title as joint owners of real estate, often with the goal of simplifying their estate or avoiding probate fees. While the intention may be straightforward, this decision raises a range of legal, tax, and financial issues that need careful consideration. What seems like a simple strategy can easily become a source of future conflict, unintended tax consequences, or administrative burden for your estate.
The Legal Presumption: Resulting Trust vs. Gift
Adding a child to the title does not automatically transfer beneficial ownership. The Supreme Court of Canada’s decision in Pecore v. Pecore confirmed that, unless there is clear evidence of donative intent, the law presumes the child holds the property in trust for the parent.
If the intent behind the ownership change is not documented correctly, surviving family members may later dispute whether the child owns the property outright or whether it forms part of the estate. These disputes often arise after death when siblings or other beneficiaries challenge ownership, sometimes leading to expensive litigation.
Family Law Exposure: Divorce and Creditors
When a child becomes a registered owner, their interest may expose the property to:
- Divorce claims: BC’s Family Law Act may treat the child’s ownership interest as family property if the child later separates or divorces.
- Creditor claims: The child’s creditors, lawsuits, or bankruptcy may result in claims against their ownership interest.
- Personal disputes: Family disagreements may complicate decisions around refinancing, selling, or managing the property.
Once added to the title, your child becomes a legal co-owner with rights that are not easily revoked.
Tax Consequences: Probate Savings vs. Capital Gains Exposure
BC probate fees are often overstated. While avoiding the 1.4% probate fee on real estate may save some cost, that savings often pales in comparison to the potential tax exposure:
- Capital Gains Tax: If the property is not the child’s principal residence, their share may not qualify for the principal residence exemption (PRE). Future growth may attract significant capital gains tax when the property is sold or inherited.
- Immediate Capital Gains: In some cases, transferring beneficial ownership may trigger a deemed disposition and immediate tax liability when the child is added to the title.
- The longer the property is held after the transfer, the greater the potential future tax liability for your estate or children.
The net tax burden can easily exceed the probate fee you sought to avoid.
Bare Trust Structures and New Reporting Obligations
Some families try to structure the arrangement using a bare trust. In this setup, the parent retains full beneficial ownership. The child holds legal title. While this approach clarifies beneficial ownership and avoids immediate tax triggers, it introduces significant new compliance obligations:
- Land Owner Transparency Act (LOTA): Any separation between legal and beneficial ownership requires disclosure under BC’s LOTA regime, including transparency declarations and transparency reports. These filings create a permanent public record of the beneficial ownership structure.
- Federal Trust Reporting (T3 Return and Schedule 15): Since 2023, most bare trusts must file annual T3 trust filings with the CRA. This obligation applies even if no income is earned or distributed. Failing to file exposes the trust to significant late-filing penalties.
These trust reporting obligations have caught many families by surprise and carry real administrative and financial risks if not properly managed.
Practical Alternatives Are Often Safer
In many cases, better estate planning solutions are available that allow you to:
- Preserve complete control over your property during your lifetime.
- Structure probate planning in a way that avoids unnecessary family law or creditor risk.
- Minimise capital gains exposure.
- Avoid triggering administrative trust reporting obligations.
- Make sure the property passes smoothly under your estate plan.
These solutions may involve carefully drafted Wills, trusts, or specific gifting strategies depending on your personal circumstances, family dynamics, and tax position.
Conclusion
Adding a child to your property title may feel like a simple shortcut to avoid probate fees, but in most cases, the risks far outweigh the potential savings. Probate planning is only one part of a proper estate plan. Tax liability, legal disputes, family harmony, and administrative burdens must all be carefully considered.
At Ratcliff LLP, we help BC families navigate these decisions, assisting clients to create sound, tax-efficient, and dispute-resistant estate plans that reflect both their financial goals and family priorities.
Author
