Legalities surround home ownership

This week, my wife and I were cycling around a central island beachside neighbourhood, looky-looing 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.

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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 hand-crafted 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 four-part 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:

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