A WILL HELPS SHOW THE WAY
What happens to your house if you die intestate?
The real estate market has been busy playing catch up after the COVID-19 pandemic brought the spring market to its knees, with record-breaking sales posted in many regions.
But a new study reveals a troublesome find: most Canadians are blissfully unaware of what will happen to their home in the event of their death.
“As the housing market continues to grow, especially with many first-time millennial homebuyers entering the market, Canadians need to be aware of the consequences of purchasing a home without a will in place,” says Erin Bury, CEO and co-founder of Willful, a Toronto-based online estate planning platform.
Dying intestate (not having a will) could result in a large tax bill on your estate and less money in your beneficiaries' pockets. According to an Angus Reid study commissioned by Willful, 80 per cent of Canadians don't know what happens to their home and its associated debt when they die.
Also, according to the study, 74 per cent of homeowners under the age of 35 don't have a will, compared to 36 per cent of homeowners overall.
Other key findings: 48 per cent of Canadians incorrectly believe their home automatically goes to their spouse or child when they die and one in 10 Canadians think their mortgage simply disappears. (FYI: In Canada, the mortgage stays with the home, not the person, so if you're the sole owner of the property and you die, the mortgage must be paid from your estate.)
“Buying a home is one of the main inflection points that may lead you to getting a will, since when you purchase a large asset you want to protect it,” Bury says. In fact, home purchase is the second most popular life event Willful users cite for creating a will. The No. 1 reason is the birth of a child.
By preparing a valid will, you determine how your estate will be divided and distributed. Your estate includes what you own (called “assets”) and what you owe (called “liabilities”). If you don't have a will, the laws in your province or territory will determine how your estate is divided.
In Ontario, when a person dies without a valid will, the Succession Law Reform Act sets out how an estate is distributed. Generally, the first $200,000 is given to the deceased person's spouse and anything above that is shared between the spouse and children.
Things get more complicated if you die without a will and have a common-law spouse and/or a blended family because common-law spouses don't have estate rights here.
How your property is owned dictates whether it is governed by your will. If you're the sole owner of a property, your property is governed by your will and would pass through your estate.
Real estate owned by two or more people “in joint tenancy with a right of survivorship” isn't governed by a will and doesn't pass through the estate of a deceased joint tenant. The surviving joint tenant automatically becomes the sole owner of the property (except where the joint tenant is an adult child of the parent co-owner).
Real estate owned by two or more people “in joint tenancy in common” doesn't include a right of survivorship. If an owner dies, that owner's interests pass on to his or her heirs. A tenant in common can transfer their property interest via a will.
Having assets pass directly to named beneficiaries is a common strategy for reducing probate taxes and executor fees. Consider, for example, Bury is the sole owner of a vacation home in Prince Edward County.
If she passed away, the house would flow through her will instead of being automatically transferred to her husband, and because it's not a primary residence her estate would be required to pay capital gains tax, an amount determined by the fair market value of a property right before a person's death, before her husband could inherit it.
“This can be very punitive to an estate since it may mean coming up with hundreds of thousands of dollars in taxes,” Bury says. However, if the house was owned jointly by Bury and her husband, it would pass directly to him if she died and he would pay capital gains only when he sold it.
What does this mean for the average homeowner? For starters, you should know what type of ownership you have, Bury advises. If it isn't what you want, change it with a real estate lawyer and amend your mortgage accordingly.
You should also understand if your property is governed by your will, so you can appreciate potential tax implications in the event of a death. You may want to revisit your will if you move, especially if you move to a different province governed by different estate laws.