April 9, 2020
Avoid Ontario Probate Tax with Joint Ownership | No Dumb Tax Questions

Avoid Ontario Probate Tax with Joint Ownership | No Dumb Tax Questions

Taxes … Feh! Who needs them? Well, actually, we all do. At least if we want to keep our cities, provinces,
and Oh, Canada operating.. Still, that doesn’t mean we have to like
’em! Perhaps the most irritating taxes are the
ones that occur upon death. It’s stressful enough when we lose a loved
one. Does the government really need to take a
cut of their worldly goods??? Maybe that’s why you’ve thought about
establishing joint ownership with right of survivorship on some of your assets. In Ontario, it can be a tempting way to get
around having to pay probate taxes when you go. Should you do it? For some, it may make sense. BUT. If you decide to use joint ownership to avoid
Ontario’s probate taxes, there also are some “gotchas.” Before you leap at the idea, let’s take
a look at the risks involved. By the way, to get a jump on other money matters,
be sure to subscribe to my “No Dumb Questions” YouTube channel. Forewarned is forearmed when preserving your
family wealth! We all want to keep our cherished assets intact
and untaxed when the time comes to pass them on to your loved ones. As you make your estate plans – as I talked
about in an earlier video you may have asked your lawyer this excellent “No Dumb Question”:
“How can I minimize taxes when transferring my estate? One approach is to put your assets in joint
name. In Ontario, this means establishing “joint
ownership with right of survivorship.” That’s joint ownership or JWRS for short. Call it what you will, if one JWRS owner predeceases
the other, the jointly held assets automatically transfer to the surviving owner by law, instead
of becoming part of the estate settlement. This means the assets do NOT go through probate
… which means they DON’T incur probate taxes. So far, so good. Probate is the legal process for certifying
that your final will is your final will,, and your estate administrators are the legal
authority to deal with your assets. For many years, Ontario residents have faced
a probate fee or tax to the tune of a half-percent on the first $50,000 of your estate value,
plus 1.5% on the rest. To put that in context, if your estate is
worth $2 million, probate taxes would be about $30,000. Who wouldn’t want to keep this kind of cash
in the family??? Then again, I can think of at least a half
dozen reasons that letting the probate tax “tail” wag your estate planning “dog”
could leave you getting bitten in the end. Establishing joint ownership to avoid probate
tax may only be a good idea if it also makes sense within you and your family’s greater
goals and circumstances. First, probate taxes aren’t the only kind
of taxes around. If you want to establish joint ownership with
someone other than your spouse, you may have to dispose of the asset first, for tax purposes. For example, say you’d like to add your
child or a sibling as a joint owner of the family cottage. Guess what? If you don’t plan the transaction just so,
that could mean a tax bill.. Another tax-related tip to be aware of is
that changing ownership to joint does not enable income splitting on your tax returns. The income attributes back to whoever accumulated
the asset, even once it’s jointly held. Credit and asset protection are also important
factors to consider. Are you a business owner in an occupation
where lawsuits happen? If so, your spouse may be best off owning
assets separately … just in case. Similarly, if your adult child has partial
ownership of your home and is sued or goes through a divorce, and you have not properly
documented the gift for matrimonial law purposes, their interest in your home could end up in
very wrong hands. There are a host of other related control
issues to mull over before you sign on the bottom line of a joint contract. Joint ownership isn’t just a theoretical
exercise. You really and truly are sharing ownership
rights, responsibilities AND risks. Bottom line, you’d better be able to trust
one another, come what may. For example, let’s say a widow decides to
put the family home in joint name with her son. Once it’s a joint, she’ll need her
son’s consent if she ever wishes to sell the property. She has to get his consent. Needless to say, this could create some stressful
conversations that are not in kind that you had in mind at the time you transferred it. Bottom line, if you are considering establishing
joint ownership to avoid probate taxes, make sure you’ve thought through all the dynamics
involved. Too often, I’ve seen well-intended families
focusing on avoiding probate tax while losing sight of protecting the bigger asset itself. What other questions can I tackle for you
and your family in future “No Dumb Questions”? Let me know, and then subscribe to my channel
and connect with me on LinkedIn. I think you’ll find the conversations are
never too taxing!

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