Equally, dividing property is often seen as the fairest way to bequeath certain forms of wealth to children, but it can create challenges. For example, what if someone wants to sell a home they inherited with a relative?
If you want to put a shared inheritance on the market, there are several avenues you can take to handle it maturely and avoid a dreaded legal battle. Here’s how you can get through the process with ease!
Understand How The System Works
While we have no inheritance taxes in Canada, what you would pay on selling a home you inherited varies, as there are different standards based on the type of property. If you’ve inherited a house, the government considers it a primary residence, and you don’t have to pay to have it transferred into your name. If you decide to move into the house, you’ll have to take over the property taxes, insurance payments, any mortgage payments, etc.
If it’s a cottage or vacation home, however, it’s seen as a secondary residence, and you may have to pay for ownership transfers. In Ontario, this can be a considerable amount, as an inherited cottage or vacation home incurs probate fees of about 1.5% of the value of the property.
Either way, deciding to sell an inherited property will mean the profit is subject to our Capital Gains Tax and probate fees:
- Capital Gains Tax means you will pay taxes based on the fair market value at the time you inherited the home or vacation home until the time you decide to sell.
- Probate fees (which, in Ontario, are known as the estate administration tax) have to be paid to the government of Ontario when an estate is probated. This tax is paid from the estate; if you’re the trustee or executor, you do not have to pay them yourself, but it will cut into the final amount of some inheritances.
Buy Your Relative’s Shares
Decedents usually design their wills to split assets like homes equally among those to whom they want to leave the property. What happens to that property is up to the inheritors. If you both agree to sell the house, you would work together and split everything 50-50 – the costs, the capital gains tax, and the profits.
But let’s say you want to sell while your relative doesn’t; in this case, you’d have to negotiate with them. If all goes smoothly, you could purchase your relative’s share in the home, but not all families are alike. If you do get the okay to purchase your relative’s share in the home, you can finance half the value with a loan. Once you’ve given your relative the money for their share, you can transfer the deed solely into your name.
Bring In The Right Professionals
Before you proceed with getting a loan for your relative’s share, you need to make sure that you don’t pay too much. Have an appraiser establish the house’s current fair market value, and hire a certified home inspector to spot any problems and repair opportunities.
Depending on the situation, you may need legal assistance. Many firms practice more than one type of law, and they can recommend the right lawyer for your needs; for example, if you need help with the sale of the property, they will connect you with a real estate lawyer. You should retain an estate lawyer to avoid costly mistakes, and a family mediator can help broker a deal between parties who might have different ideas.