(As published by the Hamilton Spectator September 2, 2022)
With good planning, you can protect yourself so you can have your cake and eat it too, writes Heather E. Watson.
One question I get as an estates lawyer is whether a homeowner should add their adult child to title of their house. Usually, they’ve heard from someone that they added their adult child to their house to avoid paying taxes and they’ve been advised to do the same. I explain that everyone is different and just because so-and-so changed title does not make it advisable for them.
Yes, adding a child to title of your home can be a useful estate planning tool: It can help to avoid Estate Administration Tax and can expedite the transfer of the house to the beneficiary upon parent’s death. However, this approach is not without risk, though with good planning, you can protect yourself so you can have your cake and eat it too.
There are two documents that you should ask your lawyer for if you are adding an adult child to title of your house for nominal consideration (meaning that you are not selling it to them for near fair market value, and you are not gifting it to them).
The first document is a trust agreement. It protects both the parent and the child. In short, it confirms that the parent is adding the child to title of their house in name only allowing the parent to remain the true “beneficial” owner.
The problem is that this can still go terribly awry if the child refuses to do what the parent asks them to do in future. If the parent wants to sell the property (or remove the child’s name from title) and if the child refuses to cooperate, then the only option is to bring a court application. I have had to assist a handful of parents in effectively suing their own child for this exact reason.
So, this brings me to the second document that I suggest you ask your lawyer for if using this approach: a limited power of attorney. You have likely heard of – and hopefully have – a general continuing power of attorney for property (general POA), but a limited power of attorney (LPOA) is different. An LPOA is “limited” in the sense that it is restricted to specific asset(s), for example a specific piece of real estate, or interest in a corporation. So, in this context, the child is making the parent their limited attorney for property but only in relation to the house in question. That way, if the child refuses to cooperate with the parent (which would constitute a breach of trust), the parent can use the LPOA to sign the documents for the child as the child’s limited attorney thereby avoiding the need to sue the child.
None of my clients that I have helped litigate this issue thought that they would have to take their own child to court. No one thinks it will be their family. In some of these cases, the trust agreement in question even had a provision that stated that the child was granting a limited power of attorney to the parent in relation to the property to do what I described above. The issue is that this does not necessarily work. You are better served with a separate form of LPOA with the formalities of a general POA. Otherwise, the land registry office will likely not accept the trust agreement as a valid POA, and reject the registration.
My motto is plan for the worst, hope for the best. If adding a child to title as part of your estate planning, ask your lawyer about not only a trust agreement, but a limited power of attorney for property too. I hope you never need to use it, but if you do then you will be glad that you have it.
Heather E. Watson is a committee member with the Hamilton Council on Aging and a senior associate lawyer at Agro Zaffiro LLP. This opinion is not meant to be construed as legal advice.
Click here for the Hamilton Spectator article.