Joint Ownership with Kids to Avoid Probate? Beware of the Risks

Julia and Dave explain why they dislike the trend of adding kids as joint owners, and why trying to avoid probate this way can seriously backfire.

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People on the estate planning front now have gone Looney Tunes with joint accounts and just willy nilly adding people’s names on the joint front. Thoughts?

I hate it.

No. So do I. I find it really frustrating and it’s gotten much worse in the last 5 to 10 years.

And so I think some people have just so, uh, up against it and don’t want to pay probate under any circumstances don’t understand all the ramifications here. Can you walk us through some of the downsides?

Why wouldn’t you just wanna stick somebody’s name on as a joint owner?

So first of all, probate, as much as everybody hates it, is generally actually pretty low.

Like in BC it’s 1.4%.

It’s higher in Ontario.

Just a little bit, but like not a lot. So this isn’t a big, the biggest number you’re dealing with, the biggest number you’re dealing with is tax. So solve that before you start wearing a broke probate.

Next thing is recognizing who you’re putting on as joint. I can see why we would put a spouse on, that would probably make a lot of sense. But just adding, don’t add your kids. so many problems here.

I often see this with people talking about their principal residents. Because maybe that’s the only thing that’s gonna get probated on last death. Oh, I’m just gonna add my kid here. Don’t do that. Couple of reasons. One, during your lifetime, if that person has ownership of your property, that means they have to sign off on everything that you want to do with it.

And a very real example from many decades ago was a client of mine who had added her child to her home before I met her. And that child refused to let her sell that home because that was his inheritance. But she wanted to sell it ’cause she wanted to live her life. You don’t know how people are going to be behave. Please, please don’t give someone control over your life. Also, the principal residence exemption that gives you zero tax from when you sold it till the end of your life or whatever, that zero tax doesn’t apply if the other other person.

Or at least for their portion, if they have a principal residence somewhere else.

So from the point that you add them until you die, or the property is sold, there’s capital gain accruing and that is taxable. So now we’re paying more tax to avoid very small probate. That’s super dumb. So between control and taxes and even the possibility that the probate court could look at what you did and say they weren’t a real owner, in fact, that was a trust agreement.

That person was holding that share of your asset in trust for your final estate, and we’re bringing it back into probate. Anyways, and you didn’t even mention the fact that now you’ve got creditor challenges if they run into difficulties.

Marital breakdown which is a big one.

That’s one that’s jumped up and bitten. People who’ve actually pulled this off. And, I love the fact that you’re being pretty aggressive here and saying more or less hard no.