The Risks of Joint Asset Ownership Between Parent and Adult Child

It is likely that you or someone you know has at least considered adding an adult child as joint owner to real estate, bank accounts, or investments. This is a popular topic at my estate planning seminars. A common motivation is to avoid estate administration tax on death (which I will refer to in this article as “probate tax”). Another reason may be to simplify the administration and management of the account or property in the case of physical limitations or mental incapacity by the parent. In some cases it is the intention of the parent to “gift” the joint asset to the surviving adult child by “right of survivorship” upon their death. Although these reasons may seem logical, it is important to be aware of the potential risks and associated costs of joint asset ownership, which may far outweigh the benefits.


First, a brief explanation of probate tax: In Ontario, probate tax is $5 per $1,000 on the first $50,000, and $15 per $1,000 on the value of the deceased’s assets exceeding $50,000. Regulations under the Estate Administration Tax Act, Ontario set out the guidelines for determining which assets and values are to be used in this calculation. It is important to seek guidance from your lawyer in interpreting these rules. The purpose of obtaining probate, known as a “Certificate of Appointment of Estate Trustee”, and when it is required, is a separate topic.

Recent Court decisions and the new Regulations make it increasingly challenging for a parent to transfer joint assets to an adult child by right of survivorship without being subject to probate tax. In a nutshell, in order to avoid probate tax the parent must properly document and confirm their intention that the jointly held asset pass directly to the surviving adult child outside of their estate without being subject to probate tax. Documenting this properly will require the assistance of a lawyer, and may necessitate a specially drafted Will.


Most people are not aware that if they add an adult child as a joint owner to real estate it is possible for the co-owner child to sell, transfer, or mortgage their part-interest in the property without the knowledge or consent of the parent. On the other hand, if the parent ever intends to sell or mortgage the entire property, the parent will require the consent of the co-owner child, who could refuse. Also, the co-owner child may not be approved as a co-borrower, due to poor credit or other issues, if the parent needs to mortgage the property. I refer to these risks as “loss of control,” and they can, in certain circumstances, have an extremely negative impact on the parent.


There may also be income tax consequences to transferring assets such as real estate to an adult child as joint tenant. The Income Tax Act, Canada may deem the addition of an adult child (even if intended as a “gift”) as a transfer at fair market value and capital gains taxes may apply. Advice should always be sought from a chartered accountant before deciding to proceed with such a property transfer.


Adding an adult child as a joint owner may expose the assets to claims from creditors or the spouse of the adult child. Even if the child does not currently have creditor issues, an unforeseen job setback, economic downturn, business failure, undisclosed gambling issue, motor vehicle accident, or lawsuit could expose the assets to claims from the child’s creditors. A breakdown of the child’s marriage could result in the former spouse claiming an interest in the joint assets. The cost of successfully defending these claims may be significant.


Another consideration is the potential tension that may be created by a parent who adds only one or some, but not all, of their children as joint owner. If the other children inheriting under their parent’s Will feel that they were not treated fairly or equally based on the transfer of joint assets to the other child by right of survivorship, this could result in a breakdown of the relationship between family members. Even worse, this could result in a lawsuit in which the benefiting joint owner child may be required to defend claims from the remaining children, which may also result in legal and Court costs being assessed against the parent’s Estate.

You can see why it is so important to obtain legal advice before deciding whether or not to add an adult child as joint owner to an asset. If you do decide to do so, thoroughly and properly documenting your intentions is critical. It may be more appropriate to use a trust or to update your Wills and Power of Attorney documents in order to achieve your ultimate goals. In many situations, taking the “easy route” of joint asset ownership actually results in greater risks and costs, which can far outweigh the benefits of any probate tax avoidance or other objectives that the parent may have had initially.

Jason P. Mallory, H.B.A., J.D.

*The comments in this article are not meant as legal opinions and readers are cautioned not to act on information provided without seeking specific legal advice with respect to their particular situation.

kerr-wood-mallory-20-200x300[1]Jason P. Mallory
is a lawyer with Kerr Wood & Mallory in Blenheim and recipient of the Margaret E. Rintoul Award in Estate Planning

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