Inheriting a house is a significant life event that comes with both emotional weight and practical considerations. If you find yourself in this situation, especially as a beginner, understanding the legal and financial aspects is crucial. In this comprehensive guide, we’ll walk you through the process of inheriting a house in Ontario and explore various options for disposing of it.
1. Understanding Inheritance Laws in Ontario
Deemed Disposition and Fair Market Value (FMV)
When someone passes away, the Canadian government treats it as a deemed disposition. Essentially, this means that the deceased disposed of their properties right before their death. However, these properties are still part of their estate. For inherited properties, the market value is generally considered to be tax-free1.
Cost Basis for Inherited Property
When you inherit a house, the cost to you is equal to the deemed proceeds of disposition for the deceased person. Typically, this amount is the Fair Market Value (FMV) of the property right before the person’s death. However, there are exceptions to this rule. For instance:
If you inherit property because your spouse or common-law partner died, the rules may differ.
Farm property or a woodlot transferred on death to a child may also be treated differently.
2. Options for Disposing of an Inherited House
Once you’ve inherited a house, consider the following options:
a. Keep and Occupy
If you’re the sole inheritor, you can choose to move into the house. This option allows you to maintain the property and create a new home for yourself.
Keep in mind that you’ll take over responsibilities such as property taxes, repairs, mortgage payments (if applicable), and insurance.
b. Rent It Out
Turning the inherited property into a rental can provide a steady income stream.
Ensure you comply with local landlord regulations and consider hiring a property management company if needed.
c. Sell It
Selling the house is a common choice. Before listing it, get the property appraised to determine its market value.
Keep in mind that selling may trigger capital gains tax. Consult a tax professional to understand the tax implications.
d. Use It as a Secondary Home
If you already have a primary residence, consider using the inherited house as a vacation home or secondary residence.
This option allows you to enjoy the property without the full-time commitment.
3. Probate and the Role of the Will
In Canada, the process of inheriting often involves probate. Probate confirms the validity of the deceased’s will, allowing the executor to distribute the estate according to the specified wishes.
During probate, the court ensures that the will meets legal requirements and appoints an executor to oversee the process.
Conclusion: Navigating the Legal Landscape
Inheriting a house in Ontario requires a blend of legal understanding and emotional resilience. Whether you’re a surviving spouse, child, or another relative, knowing your rights and responsibilities empowers you during a challenging time. Seek legal advice to navigate the complexities effectively and make informed decisions for yourself and your family.
Remember, while the emotional weight of loss is significant, being informed ensures a smoother process for all involved parties.
Disclaimer: This blog post provides general information and should not be considered legal advice. Consult a legal professional for personalized guidance.