Adding an adult child as joint owner


Adding your adult child as a joint owner to your property could have unintended tax and legal consequences.*

If you’re a Canadian living outside Québec, and are considering sharing ownership of an asset with a child during your lifetime, be careful. There are two distinct forms of joint ownership. You’ll need to specify which type you’re choosing, but also be very clear about when your child will receive both legal and beneficial ownership. If you’re not careful, unintended tax burdens, estate complications, and family conflicts can result.

Due to its prevalence in estate planning, this article specifically addresses the “joint tenancy with right of survivorship” form of joint ownership.

Presumption of resulting trust

In 2007, the Supreme Court of Canada ruled that when a parent gratuitously adds an adult child as a joint tenant to an asset, it will be presumed that the parent did not intend true joint tenancy, but rather that the child holds his or her interest on a “resulting trust” for the benefit of the parent and the parent’s estate, and that the child does not receive a “beneficial” interest in the property at the time that he or she was added – only a “legal” interest. If this presumption holds true, then:

  • There is no change in beneficial ownership when the parent adds the adult child, so no capital gains or losses are realized.
  • During the parent’s lifetime, the parent must report all the future income and capital gains from the property.
  • During the parent’s lifetime, the child will not have any rights to any part of the asset.
  • If the parent dies first,
    • a. The parent will realize all the accrued capital gains on his or her tax return in the year of death.
    • b. The asset will be considered part of the deceased parent’s estate.
    • c. The child should transfer the asset to the parent’s executor, to be distributed in accordance with the parent’s will – i.e., the child will not necessarily be the only one who will enjoy the asset. 
    • d. If the deceased parent’s executor is required to apply for probate, and the application for probate requires full disclosure of all estate assets, then the executor should include the value of the jointly held asset. This means that probate fees may be payable in respect of the asset.


Rebutting the presumption of resulting trust

The presumption of resulting trust can be rebutted with evidence of the parent’s intent to “gift” an interest to the child (the wording of the application for a joint account with a financial institution is generally insufficient evidence of intention).  If evidence of gift is produced, then:

  • There is a change in beneficial ownership when the parent adds the adult child, potentially resulting in a partial disposition of the asset. If there is an unrealized capital gain accrued, part of this gain would have to be reported at the time the joint owner is added, potentially resulting in a tax liability for the parent. 
  • During the parent’s lifetime, the parent and children should report an equal share in the future income and capital gains on the asset. 
  • During the parent’s lifetime, the child will be a part owner of the assets, meaning that the child’s interest could be exposed to claims made by the child’s creditors (including the child’s spouse).
  • If the parent dies first, 
    • a. The parent will realize the accrued capital gains with respect to his or her remaining share in the asset on his or her tax return in the year of death. 
    • b. The asset will not be considered part of the deceased parent’s estate. 
    • c. The child will inherit by right of survivorship, free and clear of any claims made by other estate beneficiaries. 
    • d. Probate fees will not apply to the asset.


Which end result do you want to apply – a resulting trust, or true joint tenancy?

If you hold an asset in joint ownership with an adult child, what end result do you want? Do you want that child to have to share the asset with the other beneficiaries in your will like other children and relatives, friends, or favourite charities? Or do you want your child to inherit the asset free and clear upon your death, with no obligation to share with the other beneficiaries of your estate? In the absence of a clearly worded contract or trust agreement between you and your child, the end result may well be that your child and your other estate beneficiaries will spend all their time and money fighting about your intentions, and very few of the assets will remain to be enjoyed.

Consider going to a lawyer to write a contract in which you clearly explain your intentions and expectations, and have your child agree to them.  The contract will hopefully prevent possible fights after your death and ensure your final wishes are addressed.

Speak with your IG Consultant about the benefits and unintended tax and legal consequences of joint ownership.

Written and published by Investors Group as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Consultant.

*This article does not pertain to residents of Québec.