Inheriting a property in Canada
Updated: Aug 13, 2020
Have you inherited Real Estate in Canada and are lost about what to do? It very well may be overwhelming, especially if you are not the only one who has acquired the property and live in a different city. In this article, we will examine how to deal with the acquired property if there is more than one owner.
What Is An Inherited Property?
An inherited property is passed down to you from a relative (parent or relative). By and large, you get an inherited property when a relative has passed away, which can make the circumstance much more emotional and stressful.
If you have inherited a property, it will be regarded as a primary residence, which means you are considered to live there full-time. You don't need to pay to have the property moved to your name or title. If you inherited a cottage/vacation home, it will be considered as a secondary residence, which means you don't live there full-time and just live there a couple of months of the year/occasionally. You may need to pay for ownership transfers with a secondary residence.
What Type of Lawyer do You Need?
While you are not required to hire a lawyer to probate an estate, it is advisable.
To figure out which legal advisor would be best for your circumstance will depend on the situation. If you are hoping to challenge a will, it is suggested that you contact an estate lawyer for lawful advice. If you need help in regards to selling the property, it is suggested that you associate with a real estate lawyer.
What Are The Taxes Involved After Inheriting Real Estate?
In Canada, there are no inheritance charges, which means you do not need to pay to assume title over a property. If you do choose to move in, you will assume property taxes, repairs, mortgage payments (if any), miatenance, and so on. On the off chance that you choose to sell, you will be exposed to the capital gains tax.
Capital gains tax is viewed as taxable income in Canada and is what you pay on the profit of the deal. You will be taxed on the fair market value at the time you acquired the home/vacation home, until the time you choose to sell. You will be taxed on half of the capital gain.
If a bungalow was purchased for $200,000 and is currently worth $500,000, the capital gain is $300,000 and you would owe taxes on $150,000.
If you have chosen to keep and move into the inherited property, as mentioned above, you will be accountable for everything that accompanies the house. Having a home inspector evaluate the property will give you an idea of what should be updated, particularly any safety concerns. If you have considered the house your primary residence for as long as 2-5 years, you may not be subject to capital gains tax.
If you choose to lease the inherited property, you will owe capital gains taxes since you are designating the type of property from a primary residence to an investment property. You may owe on the difference of the inherited value and the fair market value when you started to lease it out. It will provide a passive monthly income, however you have now taken on the responsibility of being a landlord and will be in charge of maintaining the property and must acquire knowledge of your local zoning by-laws and residential tenant act to ensure you are acting .
Other Possible Fees Involved
If you choose to sell the property with a Realtor on the MLS, you will be exposed to listing expenses, attorney costs, examination expenses, and so on. Too, you may need to pay a probate fee.
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A probate fee is a validated will and the adminstering of the estate. Although you are not paying transfer fees, you need to pay probate fees in Canada, and your new estate's assets will be considered to decide the sum. Assets incorporate things like:
How It Is Calculated:
[$5 per $1,000 on the first $50,000 of estate]
$15 per $1,000 on remaining value
What To Do After You Inherit A Home?
Before you begin on dealing with the subsequent stages with your inherited property, ensure you discuss with your family members, kin and any other person who also has ownership. Individuals will need to explore various alternatives and it's critical to get educated on what all the entanglements are before choosing what is best. We have recorded 4 stages on taking care of an acquired property to help assess your alternatives:
Contact your home insurance provider
You will need to assure the home remains completely insured when title is transferred to your name. Things like dated electrical may have been insurable on the previous policy but when a new policy is submitted, things like dated electrical may no longer be insurable without remediating to updated standards.
Change the locks
When you have been given full title to the home it is in your best interest to change the locks. Keys are easily duplicated and may have been distributed amongst the family and may be in the hands of someone who was not listed in the original will documents to inherit the property. If you decide to sell the inherited property, be sure to remove any valuble belonings.
Get an appraisal
When you take posession of the house, it is advisable that you are aware of what the property is worth. This may help you decide whether or not you will choose to keep the property or sell it. Contact a reputable local appraiser.
Maintain the property
Of course, you will want to continue to maintain the property. Interior, exterior, and landscaping. Also note that any outdated items, may be worth bringing to todays standards as an effort to increase its value and appeal. Sometimes, this can be costly and timely if some of the larger, more sought after rooms in the home such as the kitchen is dated. That said, sometimes a simple coat of paint can make dramatic changes and increase the visual appeal.
We purchase properties in as-is condition if repairs and updating is out of your budget. Find out more here.
Selling an Inherited Property
If you have come in posession of an inherited property and plan on selling the home, there a couple of steps you have to take before it can hit the market. Initially, it is suggested you associate meet at least 3 realtors to assist you to outline their services so you can evaluate who you may consider working with. If other people are recorded as inheritors of the property, it should be agreeable on which realtor you decide to work with and the details of the real estate contract as they will all be required to consent to the Listing Arrangement. Secondly, it is important to be in touch with the Lawyer who practices Real Estate Law to help guide you through the legal aspects of the transaction.
Note: if you choose to sell the inherited property and you already own a primary residence, you will be subjected to capital gains tax for the difference between the time you inherited the property for, and the final sale price of the property after its sold. For instance, if you acquire a property valued at $500,000 at the time of inheritance, you need to pay capital gains tax when you sell the home for the $500,000 in addition to whatever you make on the property deal, regardless of the initial price was $200,000 when purchased before inheriting.
Multiple Successors To an Inherited Property
It is likely that if you and whomever else are heirs to the subject inherited property that ownership is split equally. This can prove difficult if you want to keep the property and the other successor does not want to keep it. In this case, you can buy them out and if you choose to lease the property, you would share the income.
Maintaining all records, in any event, going back when your inherited property was acquired, is very important - especially when figuring out what you owe for capital gains taxes. If you inherit a house that you choose to sell immediately, you may not owe much in capital gains tax. Your lawyer and/or accountant should be able to advise what is best, given your circumstance. If you choose to move in to the inherited property and sell your primary residence, this may be a viable option as well if you've lived in your residence for more than 1-2 years. Ultimately, it is best to seek professional advice so that you understand the pros and cons of what each option has to offer and how that will allign with any plans for you, your family, and any other beneficaries that may be listed.
Inheriting a secondary residence such as a cottage, could be more expensive as well. In these circumstances, it is less about the cost to carry the secondary residence and more about keeping the property in the family if it has been past down for decades. In this case, it is best to discuss with any family members to figure out what the best solution is.
What If You Want to Keep the Property But Your Relative Wants to Sell It?
This is a very common scenario, especially if multiple family members are included in the will. In this scanario, typically each family membmer listed in the will receives an equal portion of the inherited property. The most common solution is if one member wants to keep the home and the other(s) don't, the member who wants to maintain sole ownership will buy the portion of shares owned by ther others mentioned in the will.
In many cases when a family member wants to keep sole ownership but cannot afford to buy out their family members who are noted in the will, the family members who wish to sell their shares in the property can do so to a public buyer. That said, it is not an easy task to find someone who wants to purchase 1/2 or 2/3 of a property with someone they have never met before.
The last alternative that does not include selling is that if one or more successors wish to remain in the inherited property, they can arrange a leasing agreement from the other siblings/family members involved and pay monthly rent (or whatever terms you work out). If no one has experience with writing a lease agreement, it is advised to speak to a Lawyer or Real Estate Professional for advice.
Would I be able to Rent Out An Inherited Property?
If you decide to keep the property as a rental, it is a great way to generate an additional income and create cash flow, especially if the mortgage is paid off. It is best to have an understanding of the residential tenancies act if you have no prior experience being a landlord or contact a professional or perhaps consult with a property management company.