As real estate lawyers, we are often consulted by clients who would like to transfer title or ownership of a property. This request arises for many reasons, but financial considerations are usually the main motivation.
This column will examine some of the issues and potential pitfalls that should be considered for a title transfer.
In many cases, the request to transfer title is motivated solely to save money on probate taxes. The typical situation is where a parent owns a property and the parent wants to ensure that when he or she dies, ownership of the property will transfer to his or her children without having to pay probate taxes. To achieve this, the property may be transferred from the parent to the parent and child or children as joint tenants. When the parent dies, the hope is that the property will transfer to the child or children without the requirement to pay probate taxes on the value of the house. While this may appear to make sense based on the potential savings of probate taxes, there are a number of issues that must be considered in consultation with an experienced real estate and estates lawyer.
The first issue is that the transfer may not work to save on probate taxes if the property is deemed to be held in trust for the parent. When a property is transferred from a parent to an adult child, there is presumption in law that the child will hold the property in trust for the parent. To rebut this presumption, there needs to be a clear evidence of the intention of the parent such as a declaration from the parent to confirm that the transfer was a gift. Accordingly, such a transfer could result in costly litigation attempting to determine the intention of the parent after its death.
The second issue is one of control. By transferring all or part of the property to his or her children, the parent loses control over the property.
The parent no longer has the sole ability to deal with the property without involving and obtaining the consent of the other new owners and may not be able to sell or refinance the property.
The third issue deals with unanticipated consequences of the transfer. For instance, if the property is transferred to the children and parent and one of the children has financial problems or goes bankrupt, the property could be subject to claims by creditors. Accordingly, it is possible that the property could not be sold or refinanced without first having to pay out the creditors. Similarly, if one of the children resides in the house with his or her spouse as a matrimonial home and there is a marital breakdown, the property could be the subject to a family law claim.
Finally, the transfer may trigger capital gains taxes. If the property is partially owned by a child and that child does not occupy the property as its principal residence, then upon the sale of the property, there may be a capital gain attributable to the child who may not be able to claim the principal residence exemption if the child owns other property.
As can be seen, transferring title to save on probate taxes is not as simple as it appears to be. Prior to deciding to transfer a property, it is important to consult with an experienced real estate and estates lawyer to consider the benefits and risks so that the owner can make an informed decision.