Real Estate Property in Ontario & What Happens at Death
Whenever clients ask me what happens to their real estate property when they pass away, the fast and short answer I always give is that it depends – and the type of ownership is one of the first things we address.
Sole Ownership
Sole ownership means that a person owns title in their home by themselves only. This type of ownership is common among senior homeowners (especially widows or widowers) and when one of the spouses is an entrepreneur or has had or might have creditor issues.
If the homeowner had a will, the property will be distributed pursuant to the instructions in the will. If there was no will, the property will be dealt with as an asset of the estate and the value distributed after sale to the beneficiaries under the Succession Law Reform Act.
Regardless of the existence of a will, if there is only one owner on title, the home will likely fall into the estate of the homeowner and will be subject to estate administration tax, with some exceptions.
Tenants in Common
In a tenancy in common, each co-owner takes title as to a specific percentage of ownership, totaling 100%. When title is held in this manner, each owner has a divided percentage interest in ownership of the property, and the owners can own title in any percentage they want – for example, A owns 15% and B owns 85%, or A owns 1% and B owns 99%. Tenancy in Common is popular among investors, blended families (where each of the spouse has children from a previous marriage and they want their share of the property to be distributed to their children), or when one of the owners is added to title (often at 1% ownership) in order to help the other owner qualify for a mortgage (for example, one of the parents is added to title because the bank will not qualify the adult child for a mortgage by themselves).
Tenants-in-common are not forced to remain co-owners indefinitely. Every tenant-in-common has the right to force the partition and sale of their interest in the property for its ‘fair market value’.
In the event of a co-owner’s death, the deceased co-owner’s interest is dealt with by the rules of estate law, passing to his or her heirs by will or under the Succession Law Reform Act and does not automatically transfer to the remaining title holders by right of survivorship. As a result, the home will likely be subject to estate administration tax, with some exceptions.
Joint Tenants
Joint tenancy is the most common way for legally married spouses to hold ownership of their house in Ontario. There can be more than two joint tenants, but two is the most common.
In a joint tenancy, in the event of the death of one of the joint tenants, the other joint tenant takes title by right of survivorship (with some exceptions), and therefore, the home will likely be subject to estate administration tax, with some exceptions. The most popular scenario is where the co-owners are spouses, the survivor receives the property by right of survivorship, with the result that the property by-passes the will, and the estate does not pay estate administration tax.
One of the exceptions is that if a spouse dies owning an interest in a matrimonial home as a joint tenant with a third person and not with the other spouse, the joint tenancy shall be deemed to have been severed immediately before the time of death. Also, I always tell my clients to keep in mind an asset held as joint tenants is exposed to the debts of all joint tenants.
Another exception is if the co-owner is an adult child – the court might not approve the transfer outside the will due to something called a “resulting trust”, where a property legally owned by a person who contributed nothing to its acquisition should go back to the person who purchased it for valid consideration. This will be considered a gratuitous transfer from the parent to an adult child, unless the adult child can provide proof that the gift was intended to them and not merely to be held in trust. Therefore, it is not always a good idea to add one’s child to property to avoid estate administration tax.
There are other ways to own property as well (such as through trusts), which are outside the scope of this article.
I always like to remind my potential clients that they have to consider their own personal details when planning for distribution of real estate property on death. If you have any questions about this topic, I would love to help!
PLEASE NOTE THAT THE CONTENT OF THIS BLOG IS MERELY FOR INFORMATION PURPOSES AND DOES NOT CONSTITUTE LEGAL ADVICE.
Raluca M. Soica, BBA, CPA, CMA, JD
Barrister & Solicitor
647.280.6497
info@rms-law.ca
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Raluca M. Soica, 12/10/2022 |
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