It is not unusual for parents to co-sign for their children when children are purchasing their first home. Most lenders will require that the parents be on both the mortgage and the title of the property.  When parents are being put on the title, there are some pros and cons that must be considered before deciding on whether you will equally own the property or have one party be the smaller interest holder.

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Likewise, often parents may consider adding their children to their title because they share the property, for estate planning, or for a variety of other purposes. There are some circumstances where doing so can make sense, but it is important that parents be aware of both the risks and benefits of adding children to their title.

 

Joint Tenancy 

 

This is the ownership option that results in all parties owning the entirety of the property together.  Some key considerations parents and children should look at before selecting this option are:

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• Death – If something were to happen to the parents (or the child) then the survivor becomes the sole owner of the property.  The transfer of the property to the survivor’s sole name would not in itself require a Probate Application.  The paperwork and cost to have the survivorship processed is minimal.

• Capital Gains – Since (usually) one party will not be residing in this property, they would want to consult with their accountant to confirm that their taxes are completed properly to reflect that the ownership was in fact a Bare Trust and was for the benefit of the party residing in the property. There are no Capital Gains payable on your primary residence but if the parent is also the owner of the property, when the property is sold, they need to ensure that their taxes are completed properly so that they do not jeopardize the Capital Gains Exemption that would otherwise be applicable.

• Future Land Transfer Tax – Sometimes parents are put on the title as a short-term solution and intend to have their names removed once the child is able to qualify for the mortgage on their own, typically three to five years later when the mortgage comes due for renewal.  When the time comes to transfer the property, the Land Transfer Tax will have to be paid based on the proportionate interest owned by the parent.  For example, if the house is worth $300,000 at the time of the transfer and the parent and child own the property jointly, $1,825 will have to be paid in Land Transfer Tax (again).

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Tenants in Common 

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This is the ownership option that results in the parties owning separate interests from each other.  This means that the parties can own 50/50%, or the split could be 99/1% (or anywhere in between).  Some key considerations for this option are:

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• Death – Survivorship rights no longer apply and the asset would need to be included in the deceased’s Probate Application. This would ensure that they would have to apply to administer/probate their estate. Probate/Administration is required of most Manitobans and in most situations, but where the parent resides outside of the province, this may be a deterrent because they would also have to apply for Administration in Manitoba as well as their home jurisdiction.

• Capital Gains – Capital gains, if any, would only be applicable on the percentage interest that the parties were assigned.  Our notes above about Capital Gains still apply here that parties can speak with their accountants about reporting the ownership as a Bare Trust, where appropriate.

• Responsibility to Lender – Where one party is only 1% owner of the property, this does not change the fact that the parent will remain legally bound to the mortgage fully as if they were full owners of the property. 

• Future Land Transfer Tax – If the plan is to transfer the property to the other party in the future, then there are savings here because you only pay the percentage of Land Transfer Tax that matches with your percentage ownership. For example, if the house is worth $300,000 at the time of the transfer and the parent and child own the property jointly, $36.50 will have to be paid in Land Transfer Tax when it is transferred.

 

​​Both Joint Tenancy and Tenants in Common

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A third option is to do a bit of both Joint Tenancy and Tenants in Common.  For some clients, this could look like:

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• Child owning 98% of the property in their sole name

• Parent and child owning 2% of the property jointly

 

Much like the above analysis, there are pros and cons to this option but this would cover the situation where if the parent predeceases the child, then the child would become the sole owner of the property without significant cost or headache. However, all the points set out above still apply and families should think critically about what makes sense in their particular circumstance.

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