Oran Hall | Gifting a house to a child
ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER
QUESTION: My daughter’s father and I bought a house as joint tenants and the reason for it is for my daughter to inherit this house. We both have other children, but her name could not be added to the title because she is a minor and I was advised to add her as love and affection. What are the advantages and disadvantages to this matter as we would like for her to be the sole beneficiary of this estate? – Fiona
FINANCIAL ADVISER: The essence of the advice given to you is that you should give your child a share of the property as a gift in which case the consideration on the instrument of transfer would be stated as ‘for love and affection’.
Although you can continue the present arrangement so that she can become a joint tenant, it is also possible to sever the tenancy so that each of you can be a tenant-in-common.
The approach you are proposing to take is a good example of prudent estate planning.
The tenant-in-common has an undivided share and interest in the property and has an equal right to the possession of the whole of the property but not a right to possess any part exclusively.
A tenant-in-common may deal with his or her share of the property as he or she sees fit, such as giving it as a gift. Tenants-in-common may also hold unequal shares in the property. If no share is stated, the presumption is equal shares, that is, 33.33 per cent each if there are three tenants-in-common.
The right of survivorship is a distinguishing feature of joint tenancy. This means that the property so owned passes automatically to the surviving owner upon the death of the other joint tenants without the need for a will and the probate thereof. Joint tenants are not able to gift or sell their share of the property while the other joint tenants are alive.
Your proposed approach is an inter vivos transfer by gift.
An inter vivos transfer is one made while the transferor is alive. Unless there is a special clause in the transfer document, which eventually goes to the National Land Agency, whereby the transferor retains the right to deal with the asset, despite the child being a minor, the Registrar of Titles automatically places a caveat on the title preventing dealings with the property until the child attains the age of 18.
While this does protect the interest of the child, it would prevent you and your spouse from, for example, using the property as collateral for a loan in a situation in which it could be useful in helping you to secure funding for a worthwhile project or for an emergency.
It would be prudent to engage the services of an attorney at law who is competent in such matters to draft the Instrument of Transfer and the Statutory Declaration of Value of Property. The latter states the value of the property and is required by the Stamp Duty & Transfer Tax Section of Tax Administration Jamaica, popularly known as the 'Stamp Office', to enable it to make its own assessment of the value of the house and thus determine how much you should pay to the Government.
Although there is no monetary consideration in a case such as this, the transfer tax payable is two per cent of the value of the portion of the property to be transferred, and the stamp duty is $100. The longer you take to act, the higher the value of the house gets and the higher the charges associated with the transfer become.
Once it has been stamped, the instrument of transfer as well as the registered title should be taken to the Titles Office section of the National Land Agency, where the ownership changes will be registered. The transaction would also require the payment of nominal charges at the National Land Agency.
Should you and your daughter’s father die before her, she would become the sole owner of the house. No transfer tax would be payable if it is her principal place of residence, but transfer tax of 1.5 per cent would be payable on the share of the house of the deceased joint tenant that she assumes ownership of that exceeds $10 million.
By not taking the course you have in mind, the surviving owner – you or her father –would have to use a will to give ownership of the house to your daughter. This process takes time and transfer tax of 1.5 per cent on the difference between the value of the house and the threshold of $10 million would be payable.
No transfer tax would be payable if the house is her principal place of residence. Of course, these statements would only apply if there are no changes to the present legal arrangements governing these matters.
I strongly recommend that you consult an attorney at law for professional guidance before taking any action.
Oran A. Hall, principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.