Past Estate Planning now creating issues

A previous common practice of putting children on family properties is now causing conflicts with current laws.


What has happened in the past is that children would be put on the title for the family properties for the purpose of moving the properties to the children seamlessly for estate purposes. The thought was that the children then could take over the family property, generally a family cottage, with little hassle when the parents are no longer able to manage the property.

Conflict with tax law

Doing so creates issues with tax law. This maneuver is an attempt to circumvent the deemed disposition of the property on death. While the parents can “gift” the property to the children, the property is deemed to have been sold at fair market value at the time this occurred. If this did not happen (and the tax department actually keeps these details on file,) then the capital gains can be significant.

Another problem is if the property is sold after the addition of the child, but before the child receives the full ownership of the property. For example, if the child was put on the title when they became of legal age, then the property is sold decades later, the child isn’t aware that they have to declare that sale on their tax return. This has been required in Canada for the past few years and there are several people who have discovered that they didn’t declare the sale when they should have. Or the child wasn’t called into the meeting to handle the sale of the property to the new owners, rending the actual sale at risk!

Property ownership issues

It is equally possible that the parents may have financial difficulties while the child has been put on to the property title. As a result, the municipality and/or mortgage company may seek redress from the child for outstanding debts that the parents were unable to pay. This is a concern that all individuals who are on title should be aware of as it does impact their personal credit risk. Lenders are increasingly wary when people have their name on multiple titles.

Conflict with estate law

Another issue that has come up is the conflict with estate law, specifically probate. While this isn’t an issue in some jurisdictions, others have indicated that they consider the placement of children on title for the purpose of transferring the property outside of probate is possible fraud. I am not presently aware of any court cases which have settled this situation, but it is another risk that people should be aware of.

This article touches on some legal matters which is better addressed with your legal adviser to provide specific and personal advice for your personal situation. It is only an introduction to the matter and is not intended to replace legal advice from a lawyer or other member of the legal profession.

What do people want…

Last month, I had a couple referred to me by a financial support services company. The company provides financial services to employees of their client, but have realized that their knowledge is in financial services, not taxes, so refer tax issues to me.

The couple had been reassessed for the prior year (that is, 2017) by the CRA for missing income and asked support services if this was normal. Support services took one look at the returns and referred the couple to me. Which was good for the couple.

Not only was the prior year reassessed, but the previous year was also reassessed, AND the current return (2018) was heading into the same problem.

I spent 2.5 hours with the couple, going over the returns in person, explaining what was happening and what I was seeing and what fixes that I could see. (While I could detail the problems here, the end result was that the returns were wrong.)

A few days later, we had a chat by phone, and they will be coming in to sign the corrections later this week. Yes, they owe a large amount, but the fixes that I have put into place finish the problems. Both 2017 and 2018 was fixed, and the final bill would be slightly less than the bill for 2017 as prepared by the CRA. We agreed not to touch the 2016 as the changes didn’t warrant touching.

As I explained to them, if you had owed the amount at the beginning when you filed, you would have been happy. The only reason that you are unhappy is because you found out the problem two years later. And, while everyone likes a refund, what they really want is no problems.

A correct tax return, even if you owe, is better than one that causes grief.

Why you should not email documents…

I have had several people prefer to use email to send me documents. This has created issues for most of them. Here are some issues for you to be aware of:

  • Everything that you send by email can be read by everyone in its path. And email does not travel in a straight line – People are surprised to realize that most emails being sent from Ottawa, ON to Ottawa, ON usually travel either through Michigan or New York State.
  • Email may be mis-directed or mis-typed. I had one people call wondering where their tax return was at. Turns out that they emailed their papers to someone in South Africa.
  • Replying to a previous email can route the reply through a filtering system which strips out attachments. Your documents are not received.
  • Replying to a previous email, then adding additional versions of my email address results in both emails being identified as spam and the email by-passes my in-box.
  • Replying to a previous email can result in the email being identified as non-urgent or from a conversation which has now expired. The email by-passes my in-box.
  • Sending emails about taxes may result in the email being identified as spam and by-passing my in-box.
  • Emails can expire. This means that your email isn’t seen.
  • I am a bulk receiver for emails. This means, no matter what I do, it is entirely possible that your email will not be on my screen by the time I look at the emails.

I have tools which ensure that your documents are received and logged as received. All clients can use them. Those tools prevent all of the above problems.

Client Story – Court delays payment to the tax department

I had a client who was handling his father’s estate. Unfortunately, the estate was in dispute and the court issued an order that no payments were to be made by the executor until the dispute was resolved.

While the courts had ordered that no payment was permitted, the courts did not order that the taxes were not to be filed. Accordingly, we ensured that the tax returns were timely filed to the tax department. But we were unable to pay the resulting bill.

When the dispute was resolved and the court order lifted, then the bill, with interest was paid. However, given that the interest was the result of the court order, I negotiated with the tax department to waive the interest. I was successful in those negotiations, resulting in a little more money to go to the surviving children and grandchildren of the deceased. The executor was pleased.