Atul Patel – Q - 4

4. Anwar and Leah further advise that they have added their daughter Amal as the joint owner of
their vacation property, even though she didn’t pay anything for it. Explain to Anwar and Leah
how assets held in joint ownership with adult children are treated from an estate planning
perspective.
Also, explain what consequences it might have given their stated goal of protecting all of their
assets from future relationship breakdowns and treating their children equally?
(5 marks)

For example, in the province of Ontario as an example, with the asset value close to
7,000,000 (which is in Anwar and Leah’s case) probate fees can be more than 100,000 plus other
professionals’ fees which can be a concern and most individuals will surely look to the best
suitable options to avoid or try to minimize them. As an attempt to do that, many parents
consider adding their child/children’s name to the property while they are alive by creating joint
ownership on the property and giving the property to them in the form of a gift.

Out of two ways, in joint title with the right of survivorship, the registered property will pass to
the survivor upon one of the joint owner’s death. While in the second way which is Tenant In
Common, the joint owners can choose their beneficiaries and upon joint owner/s death, the
portion of his/her asset will be passing to the chosen beneficiary and not to the survivor joint
owner.

Anwar and Leah have added Amal as joint owner with the right of survivorship option in their
vacation property as 3rd owner to reach their goal of giving it away to Amal after their death,
and thus can avoid probate.

Amal, being an adult, and also has not paid any contribution in the asset - the rules say that the
property is assumed to be held in the trust and still be part of an estate and subject to probate.

In regards to changing the ownership agreement, there are possible pros and cons that Anwar and
Leah should have a clear understanding of.

Instead of transferring the asset at the time of death, by adding Amal as joint owner and thus
become having 3 owners on the property, tax liability occurs at the time of transfer rather than at
the time of death, and Anwar and Leah have to arrange the tax amount which they might not be
ready.

If either spouse from a couple passed away, the surviving spouse and 3rd partner (Amal) will be
having have an equal share of assets and again the tax jumped in.

Subsequently, the second spouse dies and that also brings the tax in effect.
The tax calculation will be
Upon the transfer, Total Capital gain on vacation property will be shared among 3 owners, which
will be (3,500,000 FMV – 1,000,000 capital value = 2,500,000 capital gain) 2,500,000/3 comes
to 833,333 with 50 % taxable and 50 % capital gain 208,333 to Anwar and Leah each.

Upon the death of one spouse, the survivor spouse can get the asset tax free on roll over basis
(unless was elect out) and does not have to pay tax but Amal has to pay the tax on her received
portion, which is half of capital gain of first spouse 104,166. (208,333 *50%)

Pros :
And upon the second spouse’s death, Amal will be the sole owner of the vacation property and
has to clear the second spouse’s estate which can trigger a tax of 208,333 + 104,166 = 312,500.

Overall, for vacation property (worth 3,500,000) approximately 200,000 to 650,000 tax has to be
paid (depends on considering tax exemptions applied) and that also will be paid by couple,
couple’s estate, and/or Amal which seems a favourable arrangement.

Cons :
The drawback of this arrangement can be that Amal should have arrangements for paying
various taxes from time to time as well if she remarries and keep vacation property part of the
family/marital property (if proper documentation is not available) can become shareable asset
upon separation and can diminish the asset.

By giving the ownership to Amal, Anwar and Leah won't have control over the property and any
loan or mortgage needed against vacation property, if Amal denies it, it might not be an option
for Anwar and Leah.

Since Vacation property’s value is almost half of the total asset which will be allocating to Amal
(3,500,000 out of a total 6,835,000), other siblings might see it as a special favor to one child and
can loosen family bonding which surely Anwar and Leah never wants don’t to happen – unless
proper documents and alternate equal distribution arrangement is available to prove to other
children.

Anwar and Leah should be well aware of the consequences upon given of giving away the
vacation property to Amal and must keep the arrangement to provide the equal share to David
and Lisa with proper documentation for equal asset division arrangement, expect to have marital
contract arrangement for Amal (incase she remarry), and some financial arrangements to pay any
taxes that may trigger.

Professional advice and proper documentation must be taken while exercising these
arrangements since it could be a major reason for family unity breakdowns.