Adding Your Child to Your House Title in Ontario: Does It Really Avoid Probate?

"If I add my child to the title, my estate won't need probate and won't pay Estate Administration Tax on the house." We hear this often in estate planning consultations. The arrangement can affect how Estate Administration Tax is calculated, but it also raises legal, tax and family questions. Drawing on public material from the Government of Ontario, the Canada Revenue Agency and the Supreme Court of Canada, this article outlines the basic concepts and what to consider beforehand.

Why People Do It

The Ontario Ministry of Finance states that, in valuing an estate for Estate Administration Tax, assets held jointly that automatically become assets of the other owner are not included. Many people therefore assume that putting a home in joint names with a child means the home passes directly to the child on death, outside probate and without Estate Administration Tax on that property.

That reasoning has some basis, but it only addresses how the tax is calculated. Whose name is on title and who actually owns the property in law are not always the same question.

A Name on Title Is Not the Same as Ownership

In Pecore v. Pecore, 2007 SCC 17, the Supreme Court of Canada considered a parent's gratuitous transfer of assets into joint names with an adult child (in that case, joint accounts). Under that decision, such gratuitous transfers are generally subject to a presumption of resulting trust: unless there is evidence that the parent intended a gift, the child is presumed to hold the property for the parent. The key question is the parent's actual intention at the time of the transfer.

After the parent's death, other children or the estate trustee may argue that the child on title was only holding the property for the parent and that it forms part of the estate. Disputes of this kind are not unusual. Our earlier article on the Lalli decision discusses how the presumption of resulting trust applies.

What Is a Bare Trust?

Where a child is registered on title but in substance holds the property for the parent, the arrangement is often described for tax purposes as a bare trust. According to the CRA, the term "bare trust" is not defined in the Income Tax Act; it generally refers to an arrangement where the trustee has no significant powers or responsibilities, can take no action without instructions from the beneficiary, and whose only function is to hold legal title. In that situation the trustee can reasonably be considered to act as agent for the beneficiary.

For example, a parent who pays for a home but registers it in a child's name, or who adds a child to title on the understanding that the home remains the parent's, may be in a bare trust arrangement. Whether a bare trust exists depends on the actual arrangement between the parties.

Bare trust reporting rules have changed several times

The CRA's reporting requirements for bare trusts have changed repeatedly in recent years. According to its FAQ page, bare trusts are not subject to the trust reporting rules and are not required to file for taxation years ending on or after December 31, 2024 and before December 31, 2026; for taxation years ending on or after December 31, 2026, certain "reportable bare trusts" may be required to file, subject to a number of exceptions. These rules are still evolving; whether a filing is required should be confirmed against the CRA's current guidance and with an accountant.

Risks to Consider First

The following are general reminders, not legal advice on any particular situation. Before adding a child to title, consider:

• The child's own exposure: the child's debts, lawsuits or marriage breakdown could draw the property in;
• Loss of flexibility: selling, refinancing or changing the mortgage may require the child's consent and signature;
• Tax consequences: adding a name can raise tax questions, such as capital gains and the principal residence exemption, which should be reviewed with an accountant beforehand;
• Family disputes: other children may challenge the parent's intention, as discussed in Pecore;
• The unexpected: what happens to the child's interest if the child dies before the parent.

If You Proceed, Record Your Intention

Pecore shows that courts focus on the parent's actual intention at the time of the transfer. If you decide to add a child to title, it is advisable to document, with a lawyer's help and at the time of the transfer, whether it is a gift or a holding arrangement, who should receive the property on death, and how other children are to be treated. Explaining intention years later from memory is often unpersuasive.

Other Tools to Compare

Joint ownership is only one estate planning tool. Depending on the assets and the family, wills (including multiple wills), beneficiary designations and trusts may also be compared. Each has its own requirements and risks and needs to be assessed case by case. Our earlier article, Your Will Isn't the Whole Plan, gives a broader overview.

Frequently Asked Questions

Sources

• Ontario Ministry of Finance: Estate Administration Tax
• CRA: Trust types and codes (including bare trusts)
• CRA: Enhanced reporting rules for trusts and bare trusts, FAQ
• Pecore v. Pecore, 2007 SCC 17