After some discussion, the mother changed her mind and decided to leave the ownership of the house in her name only.

The fact is that putting a family home or other assets into the name of the children during the lifetime of the parent can create unintended and unhappy consequences.

That’s exactly what happened in the case of Pecore v. Pecore, heard by the Ontario Court of Appeal last year.

Edwin Hughes had been a miner in Timmins for most of his life. Before he died in 1998, he had amassed assets worth about $1.2 million. He had been advised that his estate could save significant probate fees on his death if he transferred ownership of those assets to himself and his daughter Paula Pecore.

As a result, in 1994 he started transferring most of his investments into joint ownership with Paula. Two years later, Hughes was advised that this type of transfer could trigger a capital gains tax on the profit on Paula’s “half” of the assets.

Since that was not his intention, he wrote letters to the financial institutions holding his investments stating that he did not intend to trigger any capital gains, that the funds were not being gifted to Paula, and that the ownership change was being registered for probate purposes only.

Shortly before his death, Hughes signed a will dividing his estate equally between Paula and her husband Michael Pecore. When her father died, Paula redeemed the investments which became her property as a result of the joint names registration.

Two years later, Paula and Michael separated and Michael started divorce proceedings. When he discovered that he had been named beneficiary of half of his father-in-law’s estate, he sued Paula for his share.

Both the trial court and the court of appeal ruled the father had made a gift of the investments to his daughter. They came to this conclusion even though the father had written the financial institutions stating that the transfers were not gifts, in order to ensure that he did not suffer tax consequences on the change of ownership.

The appeal court said that there was no evidence Hughes intended to evade taxes illegally. That, the court said, was a matter between the father’s estate and the tax department, not a matter between his daughter and the estranged son-in-law. Michael was cut out of the estate.

Commenting on the Pecore decision in a recent edition of Money & Family Law, Toronto estates lawyer Barry Corbin wrote that when a parent is transferring assets to a child for estate purposes, the child should sign a declaration confirming that he or she is not acquiring real ownership but only paper title.

The flip side of this, however, is that in the event probate is necessary, the probate fees will be the same as if title had not been transferred.

Corbin also notes that the parent who intends to make an actual current gift of a share of property must suffer the tax consequences of the gift. Except for a principal residence that is exempt from capital gains tax, a parent-to-child gift is viewed by the tax people in Ottawa as a sale at fair market value with all the resulting tax consequences.

Finally, Corbin notes that Hughes was one of the many individuals who believe it is possible to avoid both current income taxes and future probate fees by transferring property into joint ownership with a child with the child having no rights in the property until the parent dies.

In that scenario, it is not possible to prevent the transferred property from falling into the individual’s estate, as a matter of succession law.

For aging parents, the bottom line is that transferring ownership of property and investments into joint names with a child or children is fraught with complexities and tax issues. It’s important to get professional advice from a lawyer or accountant before making any transfers of this kind.

CLARIFICATION: In last week’s Title Page column, I reported that Ontario Superior Court Justice John Jenkins criticized the lawyer for Andrea Edwards-DeCoito for failing to protect his client by obtaining a closing date extension for her house purchase. As a result, the builder cancelled the deal and resold the property. Harvey J. Ash was the successful lawyer for Edwards-DeCoito at trial. He was not her real estate lawyer in the aborted transaction.