As a real estate lawyer, we receive many inquiries from homeowners who want to transfer title or ownership of their property to one or more individuals. The owner of the property believes that this is a simple transaction, however, this is not the case. Title transfers are done for many reasons. The most common reason is where the owner of the property is an elderly person who wants to transfer title to their children to avoid obtaining probate when they die. While this would appear to be a legitimate request, the owner of the property is unaware of the inherent risks of a title transfer. Although not an exhaustive list, below are some of the risks and factors that need to be considered before transferring title or ownership of a property:
1) Loss of Control – as the sole owner of a property, you have complete control and do not need the consent of other owners to deal with the property. By transferring title to others, you lose that control and can no longer deal with the property without the consent or approval of your co-owners. This becomes problematic in the event of a dispute or argument between the owners of the property.
2) Tax Implications – if the property is being transferred to individuals who do not reside in the property as their principle residence, there are potential capital gains and other tax implications to those individuals. It is therefore important to obtain tax or accounting advice prior to completing the title transfer.
3) Family Law issues – in situations where the new owners are married and there is a marital breakdown, it is possible that one of the spouses could make a claim against the property being transferred. For this reason, it would be advisable for the new owners to obtain advice from a family lawyer.
4) Judgments or liens – if one of the new owners has financial difficulties and is sued by creditors, this could result in a writ or lien being registered against the transferred property. This lien or judgement could bind the property and would have to be paid out if the property was sold or refinanced in the future.
5) Trust reporting requirements – new tax legislation now requires that any individual who owns trust property to file a T3 trust income tax return annually. Failure to file could result in penalties. This means that if one of the owners holds the property in trust, the reporting requirement is triggered and the owner will most likely need an accountant to file the return. This may result in annual accounting fees.
6) Is there a mortgage on the property? – Many property owners fail to understand that if there is a mortgage on the property, the owner is not at liberty to transfer title without the approval and consent of the lender. Transferring the property without the lender’s consent or approval could result in the lender demanding full payment of the outstanding amount owing on the mortgage.
In many cases, clients will call us and ask that we complete a simple title transfer. The request usually comes from an elderly owner who wants to transfer title to their children jointly to avoid probate fees on the death of the owner. While avoiding probate may make sense, the decision to transfer the property must take into consideration the risks that are set out above. Professional advice should be obtained before any decisions are made.