CONSTRUCTIVE TRUST -

QUESTION: I live in Quebec, Canada.  I currently own my parents' home which they purchased.  Big mistake because 

I own another home which i claim as personal residence.  I would like to transfer the house in their name so they can 

claim personal residence.  Are there any tax implications if I make a transfer?  i.e deemed disposition on the transfer?

---------------------------------------------------
david ingram replies:

This older series of questions may help!

-

QUESTION: My brother transferred his house under my name 10 years ago and no money was ever involved in the transfer.  My dad currently live in this house and there is no rental income.  Since this house is not my primary residence, if I sold this house would this situation be considered capital gain?

---------------------------------------------------------------------------
david ingram replies:



It depends upon how and why. If the house was your dad's first and he
transferred it to your brother and your brother transferred it to you
and you both think of it as dad's house, and dad has made all the
repairs and paid all the expenses for taxes, etc., it may be your dad's
house under what is called a constructive trust.  



If your brother transferred his house to you because he owed you money
and your dad moved in last year, its sale is tax able as a capital gain.



The actuality may be somewhere in between.

-----------------------------------------------------------

QUESTION: Me and my husband own a second house, title and mortgage is in our names. My mother lives there for free, thus we do not declare any rental income. We want to sell the house. What's the best way to pay less tax or avoid it? Do I have to pay tax even if it's my mom's primary residence? Can I transfer a title in her name, she sells it as her primary residence and pays no tax?
---------------------------------------------------------------------

david ingram replies;



This is the kind of income tax help I like giving because it deals with
family matters and expert family matter income tax help is really hard
to find. 



If the house was yours, bought and paid for by you and mother did not
pay anything towards its upkeep or its purchase, then, any profit on
this second residence is taxable to you.



On the other hand if mom sold another property and put her money into
this second residence which was registered in your name for estate
purposes and mom paid the mortgage, hydro, gas and repairs, etc., then
it is your mother's house and you only held it in trust for her.  She
had a constructive trust as the owner of the property and it would be
tax free.



Your situation may be somewhere in between.  The problem is that for
some reason or other few lawyers and tax people understand what a
constructive trust is. Your mom, for instance, may not have had enough
to buy the place you wanted so you and your husband ponied up more and
rather than loan her the money, put it in your name to protect your
interest from others.



In general, a constructive house is formed when a person who does not
own a property (car, boat, mobile home, house, condo) treats it as
their own by paying all the bills and doing all the maintenance, etc,
as if it was their own.



If you put up a lot of money and mom put up half and you put it in your
name to protect your money from the possibility that mom might die and
you were trying to keep 'your' money from your siblings, it was likely
your mother's and tax free.



If on the other hand, you and your husband are clearly getting all the
money when the house is sold, you and your husband  will owe capital
gains tax on the sale.



hope this helps.



And of course, when it comes time to do the return for the sale, you
know where we are.

--------------------------------------------



-

This applies in the US or Canada.



QUESTION: 



My father is a widower and added my sister and I on title to his house
which is his principle residence. He did this in 2003 and informed us
of it after the fact. He did this to save on the future probate fees
and no money exchanged hands. His house has considerably increased in
value in 5 years. If my sister and I wanted our names taken off the
title now, will we be subject to capital gains on our 2/3 portion from
2003 to 2008?



---------------------------

david ingram replies:



If your name was only on the title for probate purposes and neither you
nor your sister has listed 'your' shares of the house as an asset or
used it as leverage to borrow money or continue other financing, AND
your father has continued to pay all expenses, etc involving the house,
then I have no problem accepting that you were just holding the share
in trust for your father.



In that case, there should not be any tax liability if you were to take
your names off the title.



However, if either of you are married, your spouses may have other
ideas and try and claim the putative value of 'your' share of the house
in a future divorce action and claim that you took your names off the
title to circumvent BC's Family Relations Act.



When anyone wants to do this, they should have a side agreement that
accepts that the transfer was done for PROBATE purposes and that the
children acknowledge that until the parent's demise, the child will not
make any claims against the house, will not pledge their interest as
security, and return the property to the parent upon request.  At the
same time, any spouse of the child should sign the same document and
acknowledge that they have no claim against the property while the
parent is alive.



------------

2  (1)  In addition to any fees payable under the Rules of Court to commence a proceeding to obtain the issue of a grant or a resealing and to any fees payable under the Rules of Court to file documents within that proceeding, a fee determined in accordance with this section must be paid to the government, before the issue of any grant or before any resealing, as the case may be, on behalf of the estate of a deceased by the personal representative of the deceased but is payable by that personal representative in his, her or its representative capacity only.

(2)  No fee is payable under this Act

(a) on a grant de bonis non, a cessate grant or a double probate, or

(b) if the value of the estate does not exceed $25 000.

(3)  If the value of the estate exceeds $25 000, whether disclosed to the court before or after the issue of the grant or before or after the resealing, as the case may be, the amount of fee payable is

(a) $6 for every $1 000 or part of $1 000 by which the value of the estate exceeds $25 000 but is not more than $50 000, plus

(b) $14 for every $1 000 or part of $1 000 by which the value of the estate exceeds $50 000.

(4)  If, after the issue of any grant or after any resealing, the personal representative learns of the existence of an asset of the deceased that was not disclosed in the Statement of Assets, Liabilities and Distribution exhibited to the affidavit leading to the grant or to the resealing, determines that the value attributed to an asset in that statement must be revised or determines that an asset was otherwise not properly disclosed, the personal representative must disclose to the court the existence and value of that asset and must pay to the government the difference between the fee paid before the issue of the grant or before the resealing and any greater fee that would have been payable under subsections (1) to (3) had the asset been disclosed or appropriately valued in the original Statement of Assets, Liabilities and Distribution.
-----------------------------------------------------------

If her house was the only thing in the estate and worth $650,000 the probate fees in BC would be worth $8.550.  If the house was in joint tenancy with right of survivorship, there would be no probate fees and no need to go to the time and effort of probating the will.