My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned.

Monday, June 27, 2011

Probate Fee Planning- Income Tax, Estate & Legal issues to consider

Planning to reduce or eliminate probate taxes requires one to navigate a minefield of income tax rules, joint tenancy and right of survivorship issues and legal precedents. Questions of legal versus beneficial ownership of property and evidence of intention often come into play. The scary thing is, that this type of planning is often done by the uninformed.

When I started writing this blog months ago, my objective was to provide probate planning techniques. However, as I wrote and researched, I realized the legal concepts were extremely complex and beyond my area of expertise. Consequently, this blog became more conceptual in nature than initially planned. After reading this blog, I hope it becomes clear to you that you need to consult a tax or estate lawyer when undertaking any significant probate planning.

Probate Fees in Ontario


In Ontario, probate fees (technically called the “estate administration tax”) are levied on a deceased taxpayer’s estate at the rate of $250 on the first $50,000 of assets and $15 per $1,000 thereafter. Consequently, if a person were to die with assets of $1,000,000, the estate would have a probate fee liability of $14,500. An estate of $5,000,000 would have a probate fee liability of $74,500. For the other provinces, see this summary.

Two of the more common strategies to minimize probate fees are making gifts and transferring assets to joint tenancy. While these techniques may reduce or eliminate probate fees, they can create significant income tax and estate issues if not done properly.

Gifts to children and your spouse


If cash gifts are made during a person’s lifetime, they will reduce the value of his or her estate for probate purposes. If the gift is made to a child under 18 years of age, the income earned on the gifted property (i.e.: interest and dividends) will be attributed back to the person making the gift for income tax purposes. Where a cash gift is made to a spouse, the income earned on these assets (i.e.: interest and dividends as well as capital gains and losses) is attributed back to the person making the gift for income tax purposes. Cash gifts made to children who have attained the age of 18 do not invoke the income attribution rules in the Income Tax Act. So, you can make a gift to an 18 year old child which will reduce probate fees and not create any income tax problems.

Where non-cash gifts of capital property (such as gold or stocks) are made to a person other than your spouse, the property is deemed to be sold at its fair market value for income tax purposes. Thus, if a mother were to gift 1,000 shares of BCE having a total cost of $10,000 and fair market value of $30,000 to her 20 year old son, she would realize a capital gain for income tax purposes of $20,000, even though the shares were not sold and no money was received.

In an effort to avoid probate fees, some families seek to “add” the names of children to the title of a surviving parent’s home. This is done by transferring the title to the house from the surviving parent (“original owner”) to the children and surviving parent, as joint tenants (the “new owners”). Upon the transfer, the original owner/parent is treated for income tax purposes as having sold a portion of the transferred house based on the number of new owners. For example, if the new owners were parent and two children, each new owner will be treated as owning a one third interest. This means the original owner/parent in this example will be considered to have disposed of a 2/3 interest in the house. The 2/3 sale would be tax-free due to the principal residence exemption. However, 2/3 of any increase in value from the date of the gift until the house is ultimately sold will not be eligible for the principal residence exemption (assuming that the children have their own principal residences). If you are into horror stories, check out Jim Yih's blog for a nightmare of a story of a parent that put a child on title to her principal residence.

Situations such as the above may be avoided in certain circumstances where a lawyer knowledgeable in tax and/or estate law separates legal from beneficial ownership before the transfer. The Canada Revenue Agency (“CRA”) has stated that where there is a change in legal ownership without a corresponding change in the beneficial ownership (the real value is in beneficial ownership), there is not a disposition of the asset for tax purposes. What could be accomplished in the above scenario is a transfer of legal title only, without changing beneficial ownership. This would have no income tax implications but would assist in dealing with probate issues.

A further problem with transfers to joint tenancy (such as the home above) arises because with a joint tenancy, the entire title will pass to the last person alive which often is not the intent of the parent. For example, if a bank account belonging to Mom is transferred into a new account in the names of Mom, Son and Daughter, as joint tenants with right of survivorship, and Mom and Son die together, Daughter would become the “owner” of the entire account. This was not likely the intent of Mom, who likely wanted the split the account between her two children (or her grandchildren if one of her children passed away) – if not for trying to save probate fees, Mom would have never done this.

Joint Tenancy can be problematic-The Pecore Case


If property is held as joint tenants with a right of survivorship, on its face, the property will pass automatically to the surviving joint owner and is therefore not subject to probate fees. I have seen many cases where parents put their adult children’s names on bank accounts and investment portfolio accounts. The parents consider these accounts to now be exempt from probate, yet the parent continues to report the income earned on these investments in their own name for income tax purposes. (As noted above, it is the CRA’s view that if beneficial ownership has not changed there is no disposition for income tax purposes, which is in accordance with the parents plan above, however, at least from the CRA's perspective, they have some issue with whether probate transfer is effective, which is not in accordance with the parents plan above). However, many parents fail to look past the probate issue and their intention in regard to the funds is unclear, i.e., is it the parent’s intention that the funds held jointly with one child belong to that child or do they belong to all their children and there is an understanding that the child on the account will share with their siblings?

This issue was addressed in Pecore v Pecore , a 2007 Supreme Court case where the court addressed these two potentially conflicting intentions. Legally, these two intentions are known as the presumption of a resulting trust and the presumption of advancement. The presumption of resulting trust means that when a parent dies, the transferred assets form part of their estate and will be passed on to the beneficiaries of the will, typically all their children. The presumption of advancement presumes any transfer to a specific child belongs to that child. The potential for conflict is rife where a parent transfers assets into joint tenancy with one child for ease of administration.

In the Pecore decision, the Supreme Court stated that where assets are transferred without consideration (such as to a child to avoid probate) that the presumption of resulting trust will operate in almost all cases save transfers from a parent to a minor child. This means that where a parent transfers assets into a joint account with one child, there must be evidence of the intention to make a gift to that specific child. As I am not a lawyer, I cannot state what counts as irrefutable evidence, but from what I have read, a written document is a minimum requirement.

The best summation of the various legal concepts discussed above that I have found is an article by a lawyer James Baird who attempts to explain these complexities.

If done correctly and carefully, gifting, creating joint tenancy arrangements and separating legal from beneficial ownership can result in the reduction or elimination of probate fees. However, probate planning can lead to unintended income tax and estate implications as discussed above that far outweigh the probate tax savings. It is thus essential that you engage a lawyer who is comfortable in dealing with these issues, most likely a tax or estate lawyer when undertaking any significant probate planning.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

67 comments:

  1. Mark, you wrote

    "... probate fees are levied on a deceased taxpayer’s estate at the rate of $250 on the first $50,000 of assets and $15 per $1,000 thereafter. Consequently, if a person were to die with assets of $1,000,000, the estate would have a probate fee liability of $14,500."

    I'd like to know how much income this amounts to for the Ontario provincial government. Do they have do any work after the death? burial? does this money get spent on something or is it just added to the purse.

    A picture of a big funeral would have complimented this post nicely.

    ReplyDelete
  2. Great question Robert. They definitely do not pay for your funeral and until you receive letters of probate, most banks will not let you you pay for anything other than the funeral and the probate fees. To the best of my knowledge, the funds go to the cover the $16 billion dollar McGuinty Ontario deficit fund.

    ReplyDelete
  3. Regarding the issue of joint tenancy. My single parent is buying an income producing commercial property and putting me as a 'director'. As long as my parent is alive they will get the income, but I was told this will help the tax implications upon death? Is this true?

    ReplyDelete
  4. Anon-The term director is a corporate term, is the commercial property in a corporation or purchased personally? If corporate, the shares are part of probate unless you have a seperate will for those shares. If purchased personally, I am not sure what it means to be a director, I have never heard the term for probate. Just being made a joint tenant can be problematic as per the blog. The lawyers I discussed this blog with made it clear you have to have a properly constructed leal document reflecting your parent with beneficial ownership and you with legal ownership to provide some certainty. The reality however is many people just put assets in joint tennancy and ignore most of the issues above and in general, no one bothers them about it.

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  5. I'm still not clear from the above explanation what the tax consequences are of the passage of a cottage through joint tenancy to a single child. I believe this arrangement would successfully avoid inclusion of the cottage in probate, but would the parent's estate or the child be taxed in any way? What would be the cost base for the child, should s/he want to sell the cottage subsequent to receiving it through joint tenancy (presuming s/he cannot count it as a principal residence)? Thanks.

    ReplyDelete
  6. Hi Anon

    Assuming you have a proper legal agreement and the joint tenancy is structured so that the parent still beneficially owns the cottage, there is no income tax issue at that time the joint tennancy is established and there should be no probate upon the death of the parent. However, upon the death of the last surviving parent the cottage is deemed sold at its fair market value on the date of the parents death. If the value is greater than the cost to the parent, they will have a capital gain on their final tax return (assuming the cottage is not their principal residence). So no probate, but could be larege capital gain and income tax. The cost base for the single child becomes the fair market value reported on the parents final tax return. You should read the 3 blogs I have on family cottages I have under favourite posts on the right sidebar near the top, that will provide greater detail.

    ReplyDelete
    Replies
    1. Mark: Thank you for your time and effort on your highly informative blog.

      Let's see if I'm on the right track wrt the family cottage, probate, taxes, and transfership. My grandmother and father jointly purchased the cottage in 1974. It qualified as her principal residence until her recent passing.

      Implications: 1) no probate due to joint tenancy; 2) no current tax liability on grandmother's 50% interest due to PRE; 3) father inherits grandmother's 50% interest at current FMV; 4) if I'm added now to joint tenancy with my father with legal title, then no tax liability, but if added with beneficial title, then income tax would be payable on 50% of my father's portion of the calculated capital gain. Does that seem right to you?

      From my viewpoint, the most advantageous arrangement would have seen grandmother retain 100% beneficial title and father only legal title at the time of purchase. This would have resulted in maximal tax minimization through grandmother's PRE, and would have updated the cost base of the full value of the cottage to FMV at the time of her passing. Correct?

      Delete
  7. Joint tenancy can be a problem. Make sure the deal is structured correctly and reviewed in detail.

    ReplyDelete
  8. does the principle residence get counted in the estate for calculating probate taxes or is it excluded?

    ReplyDelete
  9. Hi Lou, yes your principal residence is included, however, I think any mortgage against it reduces the value, but dont quote me on that. That is why people jump through hoops to avoid it. With proper planning it may be possible to avoid the probate fees, however, as noted in the blog, legal advice with a tax understanding is necessary to avoid triggering income tax and land transfer tax. I once read an article, where at least in Ontario, a lawyer felt that your PR could be excluded in certain cases from probate. Again, I would discuss with your lawyer, but in general it is included.

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  10. Can you avoid Probate (and tax) on your house that you occupy by transferring ownership as you lie on your death bed?

    ReplyDelete
  11. Anon- I am not a lawyer and cannot answer with absolute certainty, but I think the answer is yes as long as the proper documents are drawn up. You would have to confirm such with a lawyer. If the house is your principal residence, the income tax issues will not be relevant due to the mechanics of the PR exemption and a lawyer should be able to tranfer ownership to avoid the probate. You would have to confirm if land transfer tax was an issue with the lawyer

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  12. Any idea if the principle residence would be exempted if willed to surviving children (legal age) who also live in it as their principle residence?

    Thx for the effort put into the blog btw, I've found it to be quite enlightening.

    ReplyDelete
  13. Hi Mark, great name :)& thx for the compliment.

    If the principal residence is in the parents name, it does not matter if the children live in it or not. So (1) the deemed disposition of the PR at death would be tax free due to the principal residence exemption (2)it would be subject to full probate. However, as noted in one of my comments above, I once read an article, where at least in Ontario, a lawyer felt that your PR could be excluded in certain cases from probate. I would discuss with your lawyer, but in general it is included.

    ReplyDelete
    Replies
    1. What is the principle residence exemption and can renovation costs be deducted from the sale price for Probate. (Ontario)

      Delete
    2. Hi Shirley

      See this link on the PRE. Essentially if a house is where you live, it most likely will be tax free. http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/rprtng-ncm/lns101-170/127/rsdnc/menu-eng.html

      Renovations are typically added to the cost of a house, so if sold, the gain is smaller. For probate they would likely increase the value of a property.

      Delete
  14. Anon, yes, you grasp all the concepts. The cost in using the 50/50 mom and dad strategy was: 50% of the increase in value from the time you dad became half owner, as his cost base is measured from that point in time versus the current FMV if he had been 100%. So if the property increased in value from the time your dad became 50/50, his loss in his ACB is 50% of that increase

    ReplyDelete
  15. My father bought my mothers half of the cottage (which they had,for summers only for 60 years) off of her 2 years ago, he died this year. My dad went joint tenant with me his daughter on the cottage when he bought moms half. My lawyer now tells me his half of the cottage might go towards my fathers estate. My father and mother had also a home which they shared. Question to you is could this really happen if Dad and I owned the cottage for 2 years.

    ReplyDelete
    Replies
    1. Lucinda, unfortunately I am a tax accountant and this is a legal issue. I would get a second opinion from an estate lawyer (make sure an estate lawyer) if you are concerned.

      Delete
  16. Hi,

    I have just been on your blog-website reading your comments on probate
    law, and was wondering if I could ask you a simple question ?

    My parents are still very much alive, in their mid 70's and mid-80's.
    Both own their own homes, and have significant $$$ tied up in GIC's,
    as well as several bank accounts, RRIF's. If they were to add my
    sister and I as co-beneficiaries to all of their investments, would
    any of these have probate applied to them upon the death of both
    parents, assuming both my sister and I survive them?

    Thank you,

    ReplyDelete
    Replies
    1. Hi Anon

      As per my blog, this is not a simple question. First of all I think u mean joint tenants not co-beneficiaries. Secondly, I dont think u are even allowed to become joint on a RRIF and it would be tax foolhardy if u could. As for the GIC's etc as i state in my blog there are potential tax issues. Since your parents have significant assets, pay someone for a hour of their time to clarify the risks and benefits.

      Delete
  17. Hi,
    My mother is deceased and held title as "tenants in common" with my father and now we want to transfer the title from the estate to soley my father. This is his principle residence, do we still need to probate?

    ReplyDelete
    Replies
    1. Please be advised that due to income tax season time constraints, I will not answer any questions until May. Thx for your understanding.

      Delete
  18. after 2 failed marriages ,2 children , we purchased 10 years ago , a town house for our daughter ,who was given beneficial ownership .Title was put in my name in case of divorce problems . I wish to have her name as principal owner as I am 84 and she is now able to look after her self .Is Town house increase in value a tax problem for me ,or tax free as her principal residence .

    ReplyDelete
    Replies
    1. Please be advised that due to income tax season time constraints, I will not answer any questions until May. Thx for your understanding.

      Delete
  19. My father's common law spouse of 19 yrs passed away. They both had families and their will's state their families are the beneficaries. The vehicles they purchaed were purchased in joint names (/) assuming they would go to the surviving spouse. MTO is now stating that he can not change the ownership without executor's sign off and a cash receipt. Why is this?

    ReplyDelete
  20. Great info here, thank you! I've had a joint bank account with my dad since I opened it at the age of 12 -- does Pecore vs. Pecore apply in this case since the intent was clearly not to avoid probate but to keep an eye on my spending. Does my account go into probate even though none of the balance actually belonged to my father? And in regards to joint accounts, why not 1/2 the balance going to probate like it does for property?

    ReplyDelete
  21. Hi SMN

    As I am not a lawyer, I cannot provide a definitive opinion. However, it seems to me this is more of an informal in-trust for your benefit, so I would expect there to not be an issue, but that is just my opinion, not a definitive answer.

    ReplyDelete
  22. If you sell your principal residence wile you are still alive and will your cashto your children, would they still have to pay probateorany axes?

    ReplyDelete
    Replies
    1. Hi Anon:

      Yes, only cash gifted before you pass away or bank accounts that are held in a true joint tennancy account are excluded.

      Delete
  23. Very informative website!! Thank You! My parents decided to register their retirement condo (principal residence) in the children's (me and my sister) names instead of theirs, believing that the children will be able to save on probate fees when the time comes. They are currently paying for all expenses (taxes, utilities, etc.). Our question is: Can my parents still claim the property taxes on their tax returns for the purpose of receiving the OEPTC (Ontario Energy & Property Tax Credit) even though the property tax documents were not issued in their names (but in the children's names as explained above)?

    ReplyDelete
    Replies
    1. Hi Grace

      No, the property taxes must be paid on your principal residence to to qualify.

      Delete
  24. My dad is about to purchase his third home, and he wants to put it under my name. What are the risks and benefits are there to this?

    ReplyDelete
    Replies
    1. Hi Anon

      I do not provide personal tax planning advice on this blog. Some considerations in general are:

      1. If a parent does not legally own the property, the child could sell it and walk away with the proceeds and not give the money back to the parent and/or siblings he intends to inherit the money
      2. The taxation of the home could be higher or lower depending upon the marginal tax rates.
      3. The main benefit would be the house would not be subject to probate.

      Delete
  25. My father, myself and my brother are on title (NOT as joint tenants) for our principal residence. My father passed away, leaving on his will that everything goes to my mother. This home is ALSO my mother's principal residence. My questions:

    1) Is the principal residence subject to probate taxes / fees?
    2) If yes, how can the value of the estate be reduced?

    Thanks.
    Sheela.

    ReplyDelete
    Replies
    1. Hi Sheela

      First of all the fact you and your brother are on title is problematic if you own your own residences as your 1/3 could be taxable. As I understand it, your dad has only willed 1/3 of the house to your mom, but confirm this with your lawyer.

      I am not an estate lawyer so i cannot comment on whether the house is subject to probate, but I know in Ontario I have read articles where lawyers argue probate in not needed to sell a house, so check with your lawyer.

      Delete
  26. My Mom and I added our names to each other's investment accounts 10 years ago. We continued to report income from our original investments and no capital gain/loss was reported when we added our names. Do we need to adjust our tax returns for the past 10 years? What are your recommendations? Thank you.

    ReplyDelete
    Replies
    1. Hi Anon

      I do not provide personal tax planning advice on this blog. However, I would suggest whether right or wrong, the manner is which you currently report income is consistent with how many Canadians handle the situation, which may or may not be how the CRA views the situation.

      Delete
  27. Thanks for the great info Mark. I suspect I am going to lose yet another Saturday afternoon reading your blogs.
    I am not sure if this is a tax question or legal question.
    My mother passed away in a fire damaging the house and destroying most of the contents. Normally my mother's personal property, clothing, dishes, furniture, etc, would not be subject to estate admin tax as they do not include any expensive antiques or collections. However, since I will not be replacing all of the items I have negotiated a cash payout from the insurance company payable to the "estate of". Am I now expected to pay estate admin tax on the cash value of my mothers personal property? Thanks for you help

    ReplyDelete
    Replies
    1. Hi Trish

      Sorry to hear about your mom. Unfortunately, that is more of an estate lawyer question than a tax question. Try http://estatelawcanada.blogspot.ca/ it may have the answer or u can ask the question.

      Delete
  28. Hi Mark,
    My mother recently passed away and I have a question about the property which she left me. She bought it 16 yrs ago for me to rent from her. She has never lived in it and it is my PR. About 5 yrs ago she changed it to joint tenancy with me. Since then she stopped claiming rental income on her taxes. The house has now been paid off for almost 4 yrs. That being said, am I looking at probate fees, sales tax?? I have no idea.
    Thanks

    ReplyDelete
    Replies
    1. Hi Anon

      I do not provide personal tax planning on this blog. Your situation is messy, you need to speak to an accountant. The house was not your principal residence at best until 5 years ago (1/2 of house) as you did not own it, you rented. Thus, your mother may have had a 50% deemed sale when she put house into joint 5 years ago and will have another deemed sale of 50% on her passing. As I said, complicated, u need to speak to an accountant to sort out the details and whether your mom needed to report a 50% sale 5 years ago,.

      Delete
  29. I'm the Executor of a relative's Estate. The deceased owned a principal residence which was valued at $X for probate purposes by an accredited Real Estate professional. The Estate put money into the house renovating it prior to sale (as it was unlivable as it stood at time of death). The house sold for more than it was valued at probate. Would that difference in price between probate valuation and the actual sale price qualify as capitol gains? Have already submitted the Estate return but have not yet applied for clearance certificate as the assessments are not yet in hand.

    ReplyDelete
    Replies
    1. Hi Peter

      The $x plus renovations became the new cost for the estate. If it was sold for more than $x plus reno's, there is a capital gain to the estate. It is possible the appraiser knowing the value was for probate provided the lower end, which while great for probate may be worse for tax. If you have an estate accountant, you may want to discuss the alternatives with them.

      Delete
    2. OK - thanks and yes, I have an accountant doing the estate tax stuff so, I'll speak with him re: the gain between; appraisal + renovation costs and sell price. The original appraisal was not intentionally low-balled for probate. The house was virtually unlivable before renovations. Surprising what a difference a little expense and some effort can have on this type of estate asset. Even if there's a capital gain payable, the beneficiaries will still benefit.

      Delete
  30. Hi Mark,

    Great blog with lots of helpful information!

    I have a question about the tax implications of Joint Tenancy.

    My father passed away earlier in the year and now my mother is the remaining title holder on their house. My mother would like to add me (her daughter) as a joint tenant to the house (her principle residence). As I understand it, this would result in future capital gains tax on my new share of the house. However, our plan is to renovate the house and for me and my family to move in with her. Since the house would then also become my principle residence, would that eliminate the capital gains tax?

    Thanks!

    ReplyDelete
    Replies
    1. Hi Anon:

      I don't provide income tax planning advice on this blog. That said, if you actually move in and you have equal title with your mother, than in general half the house should become your PR and not be taxable. As I am not aware of all the facts, discuss this with your lawyer or accountant to ensure you understand the various legal and income tax implications of this proposed change.

      Delete
    2. Dear Mark,
      My son is purchasing a condo for $X. I agreed to contribute 44% of the estate cost into downpayment (as a gift), with $Z amount still being a mortgage my son agreed to pay. He is a first time buyer and I am not. I would like myself to be on the title and I am considering a couple options: one of them is being a cosigner for the mortgage (and pay land transfer tax at closing date), another - adding myself to the title as joint tenant after closing. What is the difference between these options from tax perspective? Are there other options I should consider?
      Thanks, Jack

      Delete
    3. Hi Jack

      I do not provide tax planning on this blog, just some direction. Not sure why you need to be on title, if you want to provide a gift and then take a mortgage for the rest. For tax purposes, assuming u have your own principal residence, in general you would not want to be on title.

      Delete
  31. Hi Mark,

    My mother passed away in February this year. She was living in a nursing home since October 2008. My brother was renting out some rooms in the house since May 2012 but was not paying any rent himself.

    Since my mother's principal residence became the nursing home in October 2008 does the estate have to pay capital gains on the value of her home from October 2008 to the time it is sold?

    Thanks.
    Jay

    ReplyDelete
    Replies
    1. Hi Jay

      Yes, it is possible a portion of the principal residence exemption may have been compromised (keep in mind the PRE allows you one free year of ownership, that may help). You should speak to either your mom's accountant or your accountant or hire one to see what the consequences are and whether you can plan around them at all.

      Delete
  32. My mom and dad have several GIC investments at different banks in Ontario. My sister who is the exex (I was asked but turned it down.....) has talked my dad into having her name added to 1 of the 5 GICs. He came to me last night and told me what he had done and I'm pretty sure I was picking up some remorse and he wanted me to find out if he had done the right thing. I realize that there could be some tax implications but my question is, if my sister was to die, and because she is now half owner of the GIC would her kids get her "half" of my dad's money?

    ReplyDelete
    Replies
    1. I am not an estate lawyer but as per my blog above the change to the GIC could be problematic and ur father should speak to his lawyer about the implications of adding ur sisters name

      Delete
  33. Mark,

    Generally speaking, if an adult child lives in a house (alone) and has for many years purchased by their mother and with the title in their mother’s name, does the adult child (as the beneficial owner) report the gain/loss on the sale of the home or does their mother as the legal title holder?

    Thanks.

    ReplyDelete
    Replies
    1. Hi Anon:

      I don't provide specific tax planning advice on this blog and beneficial vs legal ownership is a very sticky issue. But in general,subject to the specific facts, I would say mom would probably have to report if she paid for the home and it was not a gift, however, get legal or tax advice based on the actual facts and legal ownership facts

      Delete
  34. Mark, regarding PR, something I'm not clear on..
    Let's say a lone parent leaves their house to their children, there is deemed disposition on date of death and so there is a FMV determined/assessed within a couple of weeks by an independent valuator.. the house is sold a few months later (within the same tax year) for a different/greater amount. Are there any tax consequences on the difference between the valuation and the actual amount sold? If so, who pays this tax, the estate or the remaining children? Is it even necessary to have the initial valuation done, or could the actual sell price of the house serve at the deemed disposition value when completing the tax return?
    Thanks

    ReplyDelete
    Replies
    1. Hi anon

      Technically if the value of the house changes from the date of death to the date of disposition there is a capital gain owing by the estate

      Delete
  35. Hi Mark, I'm a CPA myself, but find I'm more interested in personal finance. I came across your site this morning and have probably spent the better part of my day reading various excerpts - great site!
    Question - is it fair to say that if a parent is terminally ill and they have investments in RRSPs (GICs & Mutual Funds) that they should turn their investments into cash ASAP and gift the cash to their children to avoid any probate fees on these funds?

    ReplyDelete
    Replies
    1. Hi anon

      While I would always consider liquidation for purposes of probate I would definitely not say it is an automatic. Did u read my articles on tax planning for the terminally ill?

      Delete
  36. What a great blog! Thank You. I may have missed it but I found no reference to a Life Estate Deed as a suitable vehicle to avoid probate and legal costs and fees. Is this a viable answer in Ontario? The main asset in our estate will be our principle residence. Thanks.

    ReplyDelete
    Replies
    1. Hi Bob

      thx. I am not an estate lawyer and to be honest I have never heard of such a deed, it appears to be a US term. You would need to ask an Ontario estate lawyer, sorry.

      Delete
  37. Hypothetical question: Mother is now close to death and in nursing home. She has business and property in partnership with son A. Son B is basically a theif and will do whatever necessary to assure Son A gets nothing. Sister has power of attorney for mother. Should land and business be transferred to son A (as in the will) before mother dies? will capital gains of property then be responsibility of the estate?

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  38. My brother and I (both live in Alberta) inherited my Mom's principle residence in Ottawa. We plan to sell the house once we have the Certificate of Appointment in Ontario. Do we have to change the title in our names or can we sell the house in our Mom's Estate name? If we leave the title in the Estate name, can the proceeds from the sale of the house be paid directly to my brother and I, or is it to be paid directly to the estate account we have set up in my Mother's name?

    Regards, Glenn

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    1. Hi Glenn

      You should check with your estate lawyer. My understanding is it is sold in the estates name and any gain from your mothers passing to the date of sale is a gain/loss in the estate and then you can distribute the proceeds to the beneficiaries. But as I am not an estate lawyer, you need to confirm that with your lawyer.

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  39. Hi, my mother is considering transferring the title of her (mortgate free) home to my sister, who doesn't currently own her own home. Then once my mother passes away my sister would take a mortgage out for a large part of it and give her siblings the share of the home as my mother wanted. Is this a good or bad idea, and if this was done, could we set up an agreement between my sister and the brothers of what the arrangement would be?

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    1. Hi Numismatist

      I do not comment on family personal tax planning. You should seek tax and legal advice. I would suggest the legal and family issues that could arise here are likely not worth the probate savings assuming your mom's home qualifies for the PR exemption currently, however, i am not aware of all the issues and you should speak to an accountant and/or lawyer.

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