Q: My spouse and I are doing some estate planning and want to ensure our farm goes to our children and grandchildren. Our financial planner has suggested we put the land into joint names with our children. Is this a good idea?
A: You should trust your instincts. Estate planning should provide an orderly transition of assets from one generation to the next. In doing so, the assets should flow from one person to others with a minimum of expense and trouble. However, it is also crucial to reduce or eliminate risk. The plan suggested by your financial planner has a large measure of risk in it.
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By putting the land or other assets into joint names with your children, you will cut out probate fees, which are the fees charged by the court and by lawyers to administer your estate. Your estate that passes under your will is comprised of assets that you own in your sole name at the day of your death.
Assets that are held jointly at that date are not dealt with in your estate settlement and probate is not required. Joint ownership of land or other assets will avoid the legal process of probate and its costs.
Here is the main problem with this plan. If you put your assets into joint names with your children, there is a possibility the property will be assessed as partly theirs even though they are on the title only for estate planning purposes.
In other words, third parties could claim that your kids have a partial ownership interest in your farm assets during your lifetime.
Those same third parties could advance claims against those assets. Here are two examples that illustrate the risk.
First, if you owe no money but your children do, then their creditors could obtain civil judgments against them. In trying to collect on those judgments, the creditors could claim some of your farm assets. As well, the assets could be caught by security agreements granted by your children.
Security agreements supply collateral to creditors such as banks or credit unions. Some security agreements or debentures catch all “present and after-acquired property,” which means anything the grantor owns at the time or acquires afterward.
So it is possible that farm assets you want to hold and use until you die could become subject to being used as collateral by a creditor of your children. Clearly that’s not what you are intending to do with this estate planning exercise.
Second, we live in an age of divorce. If your child is a part owner of your property and that child goes through a divorce, your son- or daughter-in-law may claim against that property.
There are ways to avoid this but it is not easy and few people do it.
Clearly, in arranging your financial and property affairs to be easily dealt with on your death, you do not intend to make those assets shareable property of your children to be divided on marital breakdown.
You can avoid some of these problems through carefully drafted trust deeds or by getting a signed acknowledgement from your in-laws, stating they understand the joint ownership is for estate planning only and renouncing any claim to the property in the event of divorce. This is best done before your child marries, or at least before the property is transferred. Many people are reluctant to do this before a wedding or after a relationship is firmly established.
I generally recommend against this course of action. Only if carefully managed can it be successful, with little or no risk. There is often conflicting advice received from lawyers, financial planners, bankers and accountants. Take advice from all sides, evaluate it carefully and act accordingly. Be sure to consult with specialists who deal with this type of problem on a consistent basis.
Rick Danyliuk is a practising lawyer in Saskatoon with McDougall Gauley LLP. He also has experience in teaching and writing about legal issues. His columns are intended as general advice only. Individuals are encouraged to seek other opinions and/or personal counsel when dealing with legal matters.
