Putting property in children's names is risky

Bob Aaron in Legal

There's a common misconception that the best way to avoid Ontario's 1.5 per cent probate fees on the value of an estate is to place the family home and other assets into joint ownership with a child or children, so that the property will automatically transfer to the survivor after death of the parents.

Unfortunately, making transfers like this doesn't always work out as intended, and the consequences can be disastrous.

That's what happened in the case of Bergen v. Bergen*, heard this summer in British Columbia Supreme Court.

Charlotte Bergen is 79 years old. She and her late husband, Walter, were married for 52 years. After they retired in 1995, they bought a 23.9-acre (9.6 hectares) parcel of land near Paterson, B.C. with the intention of building a house there and moving out to the West Coast. Paterson is in the B.C. interior, near the U.S. border.

Three years after buying the property, the couple decided to put their son Robert on title jointly as to a one-third interest. Their intention was that Robert would eventually inherit the property and this would ensure that it bypassed probate and the accompanying expense.

Probate fees in B.C. for estates of more than $50,000 approach 1.4 per cent of the value of the assets.

Shortly after Robert became a part owner of the property, he began building a house on the site. Over the next five years, his parents advanced him more than $552,000 for construction costs, plus an additional $175,000, which was funded by a mortgage on the property.

Robert was under the impression that his parents were giving him the house and that he would eventually inherit it. His parents, on the other hand, intended it as their own retirement home, and in fact moved into it in the spring of 2000. This came a huge surprise to Robert, who viewed it as his parents reneging on their agreement to buy him the house that he was building.

At this point, the relationship between Robert and his parents deteriorated. Charlotte and Walter installed an alarm system and changed the locks.

In January 2006, the parents travelled to Ontario to visit their other son, and the day after they left, Robert and his wife, Tamsin, moved into the house. When his parents found out, they demanded the couple move, and eventually obtained a court order ordering Robert and Tamsin out and directing that the property be sold. The order was ignored.

Walter died in December 2007, and the hearing of Charlotte's lawsuit against Robert and Tamsin took place in July of this year. Charlotte's claim was for an order for the sale of the property and distribution of the proceeds. Robert's defence was that his parents were holding the property in trust for him because of an earlier bankruptcy and to protect him in light of his remarriage in 1996. He felt that his brother, back in Ontario, had received more than his fair share of his parents' generosity.

Justice T. Mark McEwan released his decision in August.

"At the heart of this case," he wrote, "there appears to be a terrible failure of communication."

In ruling against Robert, the judge wrote, "Robert's notion that there was a gift of the entire property to him is simply, on the facts, and in law, incorrect ... A promise to the effect that 'all this will be yours someday' does not give rise to a legal right."

McEwan ruled that Robert held his one-third interest in trust for his mother.

The judge ordered that ownership of the house be transferred to Charlotte, that Robert and Tamsin had to vacate it, and that Charlotte was free to sell it.

The lesson to be learned from the case is that parents who want to place properties in the names of their children in order to avoid Ontario probate fees of 1.5 per cent should be aware of the risks and seek professional advice before they do so.

Bob Aaron is a sole practitioner at the law firm of Aaron & Aaron in Toronto and a board member of the Tarion Warranty Corp.  Bob specializes in the areas of real estate, corporate and commercial law, estates and wills and landlord/tenant law. His Title Page column appears Saturdays in The Toronto Star and weekly on Move Smartly.  E-mail bob@aaron.ca

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