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Q. I am retired and looking for ways to save tax on assets transferred to my children after my death. My principal residence makes up the majority of my estate and my heirs will likely have to pay probate on my home at the time of my death before it is transferred to them. Is there any way to transfer the title upon my death or sooner and avoid the 1.5 per cent probate in Ontario? What are the risks of doing this? —Calvin

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FP Answers: Dear Calvin, estate planning requires you to consider your legal obligations. Your children, if you are not supporting them, may not be legal dependants. You may not have legal, but moral, obligations toward them.

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If you choose to benefit your children after your debts, taxes and legal obligations are met, wonderful. This is why you need legal advice to prepare your will and estate plan. You need to identify what’s left after you cover your legal obligations.

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There are many ways to reduce Ontario’s provincial estate administration tax (EAT). This tax was formerly referred to as a provincial probate tax. Since your principal asset is your residence, you may wish to consider a transfer to a qualifying inter vivos trust (often called a living trust). This can avoid provincial estate taxes and keep matters private. There are pros and cons to consider but these trusts can avoid Ontario’s EAT.

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If you transfer your residence to your beneficiaries before you die, there are several potential issues to consider. You need your own lawyer to advise you. The beneficiary who receives an interest in your home needs his or her own separate lawyer for advice. Your property may not be your beneficiary’s principal residence, even if added as an owner. This may create tax issues and could require filing a trust tax return, unless an exemption applies.

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You do not mention if you have a spouse who may have an interest in your property. This is a legal obligation to consider. You need advice regarding your legal obligations to support a spouse. If you have a spouse, do you have a prenuptial agreement to allow you more freedom to make your will? Do you have a qualifying spouse? You can designate them as a beneficiary of registered investment plans such as a registered retirement savings plan (RRSP) for income tax and EAT savings.

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You did not mention if you have a line of credit or mortgage on the property. This must also be considered. If you add a person to the property title, you lose total control over the asset. This asset may also then be subject to the beneficiary’s creditors or spousal claims. Such transfers could force you to sell your residence before you die.

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You also do not mention your age or if you have considered your critical care needs.

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Ontario’s EAT is roughly 1.5 per cent based on fair market value, above the first $50,000 and less any registered indebtedness on the property. Having a mortgage may reduce the EAT. If there are multiple heirs, they must agree about how to handle the property, how it is to be maintained and how expenses are shared. You may, instead, want your trust or estate trustee to sell the property and divide the proceeds.