Le­gal­i­ties sur­round home own­er­ship

The Prince George Citizen - - Money - MARK RYAN

This week, my wife and I were cy­cling around a cen­tral is­land beach­side neigh­bour­hood, looky­loo­ing into the stately homes, ad­mir­ing the cutesy yards and gen­er­ally striv­ing to be as an­noy­ing as pos­si­ble. Af­ter a cou­ple of laps around beach­front vil­las we couldn’t af­ford, we ven­tured land­ward, to­ward the only-mostly-gor­geous sec­tor and felt a bit more among our peo­ple. There in the shade of a mossy maple tree, a hand-painted sand­wich board pro­moted a lo­cal artisan. We de­cided to poke our heads in to the yard and see what chil­dren of the 50s looked like in their 60s.

Just in­side the drive­way, be­hind a thicket of salmonberr­y bushes, a bearded ex-pat Al­ber­tan with a goofy grin on his face, sat in a five-foot in­flat­able dingy, oars in hand, mock-row­ing across his shaded lawn. Clearly startled that some­one re­sponded to their ad­ver­tise­ment, he looked wide-eyed, caught in the act of some sort of grassy es­cape (you de­cide). We dodged the seven cats, and picked our way about 400,000 hand­crafted glass beads be­fore mak­ing our de­ci­sion and mov­ing on.

Silly though he may have seemed, this guy had a roomy work­shop that would make any shop teacher proud.

His wife, a cat-res­cuer in a tie-died moomoo, was con­tent to play with her glass-crafting in­stru­ments, whether or not some won­der­ing cou­ple would make their way in. On in­quiry, we learned that they had sold their place in

Cal­gary, cashed in that one huge tax-free ben­e­fit of Cana­dian life and set­tled into their dream in Ship’s Point, B.C. Thank good­ness even a tax-ob­sessed gov­ern­ment has not yet stripped away the cher­ished prin­ci­ple res­i­dence tax ex­emp­tion.

This week, our fourth in a four­part series out­lines the ben­e­fit some more.

What if the home is owned by a trust? The trustee holds le­gal own­er­ship of the prop­erty for the ben­e­fit of the ben­e­fi­ciary, who is in turn (of course) the ben­e­fi­cial owner.

Prop­er­ties, in­clud­ing a prin­ci­pal res­i­dence, may be trans­ferred to or held in a trust to min­i­mize ex­po­sure to pro­bate fees and/or U.S. es­tate tax on death, or to en­sure the smooth tran­si­tion of a prop­erty be­tween gen­er­a­tions.

Prior to 2017, a trust could des­ig­nate sold prop­erty as a prin­ci­pal res­i­dence, and shel­ter some or all of the re­sult­ing cap­i­tal gains. Since 2017, only cer­tain types of trusts can do so. Namely:

An al­ter ego trust, spousal trust, joint spousal trust or cer­tain trusts for the ex­clu­sive ben­e­fit of the set­tler dur­ing the life of the set­tler.

A tes­ta­men­tary trust that is a qual­i­fied dis­abil­ity trust (QDT). The dis­abled ben­e­fi­ciary must be a spouse, former spouse or child of the set­tler.

An in­ter-vivos or tes­ta­men­tary trust for a mi­nor child where both par­ents have passed away be­fore the start of the year or a tes­ta­men­tary trust for a mi­nor child that arose be­fore the start of the year where one of the par­ents has passed away.

Since the end of 2016, a spe­cial tran­si­tional rule al­lows newly dis­qual­i­fied trusts to use the prin­ci­pal res­i­dence ex­emp­tion to shel­ter gains ac­crued up to the end of 2016.

If prop­erty is held by a trust that is no longer el­i­gi­ble to claim the prin­ci­pal res­i­dence ex­emp­tion, you may want to con­sider whether it’s pos­si­ble to trans­fer the prop­erty a trust ben­e­fi­ciary prior to sell­ing it. If you do this prop­erly, the trustee will be deemed to dis­trib­ute the prop­erty at the its cost base, and the re­ceiv­ing ben­e­fi­ciary ac­quires the prop­erty at the same cost.

Where prop­erty is dis­trib­uted to a ben­e­fi­ciary on a tax-de­ferred ba­sis, the ben­e­fi­ciary is deemed to have owned the prop­erty con­tin­u­ously since the trust last ac­quired it for pur­poses of the prin­ci­pal res­i­dence ex­emp­tion.

When the prop­erty is sub­se­quently sold by the ben­e­fi­ciary, the ben­e­fi­ciary may claim the prin­ci­pal res­i­dence ex­emp­tion for the years the trust owned the prop­erty pro­vided that the ben­e­fi­ciary, or spouse, former spouse or chil­dren lived in the prop­erty while the trust owned the prop­erty.

But be care­ful. There are cir­cum­stances where it may not be ap­pro­pri­ate to trans­fer the prop­erty to a ben­e­fi­ciary, as noted be­low.

Es­tate plan­ning con­sid­er­a­tions: as a sur­viv­ing spouse, if you want to avoid pro­bate fees or sim­plify the ad­min­is­tra­tion of your even­tual es­tate, you might con­sider reg­is­ter­ing ti­tle to your prin­ci­pal res­i­dence in joint names with chil­dren. But that can pro­duce un­in­tended con­se­quences. When you trans­fer your res­i­dence into joint own­er­ship with your child, a tax­able dis­po­si­tion may re­sult with re­spect to the por­tion of the home trans­ferred (though it may be pos­si­ble to claim the prin­ci­pal res­i­dence ex­emp­tion). As well, on a sub­se­quent sale, your child may be li­able to pay tax on their share of any gains that have ac­crued on the prop­erty, since the prin­ci­pal res­i­dence ex­emp­tion will not be avail­able to your child un­less they lived in the home.

Cau­tion and cost con­sid­er­a­tions: trans­fer­ring a prop­erty into joint own­er­ship with an adult child may ex­pose the home to the mar­i­tal and cred­i­tor claims of the child, and the child will be re­quired to sign any doc­u­men­ta­tion re­lat­ing to its sale or re­fi­nanc­ing. There may also be le­gal costs and land trans­fer fees in­volved. Con­sult with a lawyer prior to adding an adult child to the ti­tle.

— Mark Ryan is an in­vest­ment ad­vi­sor with RBC Do­min­ion Se­cu­ri­ties Inc. (Mem­ber–Cana­dian In­vestor Pro­tec­tion Fund), and these are Mark’s views, and not those of RBC Do­min­ion Se­cu­ri­ties. This ar­ti­cle is for in­for­ma­tion pur­poses only. Please con­sult with a pro­fes­sional ad­vi­sor be­fore tak­ing any ac­tion based on in­for­ma­tion in this ar­ti­cle. See Mark’s web­site at: http://dir. rbcin­vest­ments.com/mark.ryan.

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