THE LAWYERS WEEKLY MARCH 17, 2017 • 13

Focus TAX LAW Pitfalls of reducing fees with joint ownership

Unanticipated claims of the 6 spouse of the new joint owner. If a half-ownership of an asset is transferred to an adult child and the adult child has a spouse who Mary Wahbi they later separate from, the child’s spouse could have a claim on the child’s half of the asset, particu- lthough probate of a larly if that asset is a matrimonial A deceased’s will isn’t manda- home such as a cottage. Even if the tory, it is often required by financial gift is of an asset that is excluded institutions and government agen- from the equalization calculation, cies as judicial confirmation that such as an investment portfolio, the will is valid and that the execu- gifted wealth enhances the child’s tor is authorized to act in the estate. ability to pay support. When a will is submitted to the court for probate, estate adminis- Unanticipated claims regard- tration tax (the probate fee) is 7 ing the new joint owner. If the charged in Ontario at approxi- joint owner has financial problems mately 1.5 per cent of the gross or declares bankruptcy, their value of the estate. ownership in the asset could be This has resulted in a focus on C-GEORGE / ISTOCKPHOTO.COM subject to claims by their creditors. probate fee reduction strategies A number of other probate sav- by lawyers and ings strategies are available in their clients, including the trans- the estate planning lawyer’s fer of assets such as a home, cot- arsenal including alter ego tage, bank account or investment If a half-ownership of an asset is transferred to an adult child and the adult trusts, joint partner trusts, bare account to a joint owner so that child has a spouse who they later separate from, the child’s spouse could arrangements and dual the asset passes automatically to wills that may better achieve the surviving joint owner outside have a claim on the child’s half of the asset, particularly if that asset is a probate fee savings without the the will and is not subject to pro- matrimonial home such as a cottage. adverse consequences that can bate fees. result from transferring assets While this has become a popu- into joint ownership. lar strategy, it is in fact the most Mary Wahbi problematic and can result in a Fogler Rubinoff LLP Mary Wahbi is a partner at Fogler number of negative consequences Rubinoff LLP. Her practice focuses on as follows: estate planning, estate administration, the child. After the transfer of an separation of the parties, the ori- after the date of separation in the corporate reorganizations and The transfer may not work to income producing asset, the joint ginal owner does not get the value of the property because it is business succession planning: 1 save on probate fees. In a owner will have to file tax returns benefit of the exclusive growth now owned by both parties. [email protected], 416-864-7629. transfer from a parent to an adult claiming his share of the income child, the presumption is that the earned and pay tax at his mar- child holds title on a resulting ginal rates, which may be higher trust. The child must prove the than the parent’s. intention of the deceased joint owner was to make a gift (see Loss of control of the prop- Pecore v. Pecore 2007 SCC 17 and 3 erty. The original owner will Madsen Estate v. Saylor 2007 no longer be the only person with SCC 18). control of the property. The prop- There is a need in such a case to erty can’t be sold or transferred include of a clear inten- back to the original owner with- tion to transfer the beneficial out the joint owner’s consent. interest in the asset, best pro- The use of the property and fund- vided by way of a written declara- ing for the maintenance of the tion of such intention. Assets property may also become an held on a resulting trust are issue between the owners, for TIGATELU / ISTOCKPHOTO.COM included in calculating probate example, in the case of the trans- fees so no savings results. Such a fer of ownership of a cottage. Proud mom posts 7-year-old’s driving lesson transfer may also result in expen- sive litigation to determine the Skewing of the estate plan. It’s a fine thing to teach your child to drive, but not when they have trouble parent’s intention after death. 4 The parents’ overall estate seeing over the steering wheel. An Altamonte Springs, Fla., woman recently plan may not be what actually Adverse income tax conse- happens. If the asset transferred pleaded no contest to charges of contributing to the delinquency of a minor 2 quences. The transfer of an into joint tenancy with one bene- and allowing an unauthorized person to drive a motor vehicle, reports asset with accrued gains to some- ficiary creates a taxable dispos- orlandosentinel.com. The trouble began when the woman picked her one other than the owner’s spouse ition in the estate, the tax payable is a deemed disposition at fair on the capital gains will be pay- 7-year-old son up after school at a bus stop and decided to let him drive the market value which will trigger able by the estate and borne by third of a mile home. Worse, she took a video of him driving as she sat in tax on any accrued capital gains the residue, while the asset with on the half gifted by the transfer. accrued gains will go to the joint the passenger seat and posted it on social media. To top it off, the boy The transfer of a home into joint owner without the tax burden. wasn’t wearing a seatbelt. The car travelled at an average speed of 28 m.p.h. ownership with an adult child by and no one was hurt. A local school resource deputy saw the video, a parent will result in the loss of A change in the treatment of the full capital gains exemption 5 the property for family law recognized the child as being a pupil at the school and alerted the Seminole on the home’s future gain in purposes. If the original owner is County Sheriff’s Office, who then charged her. Circuit Judge Debra Nelson value, turning a 100 per cent tax- a spouse and transfers the matri- placed her on 12 months’ probation and ordered her to take a parenting free gain into a partially taxable monial home to his spouse as gain on the half that is gifted to joint tenants, on a subsequent class and a driver improvement class. — STAFF