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Wednesday, September 4, 2013

What happens when there are five owners of a property and one dies?

What happens when there are five owners of a property and one dies? The answer is more complicated than you might realize. A reader asked me about this recently. Here are his question and my answer:

"My four brothers and I own property. One died without a will. Do his children inherit the money if we sell property?"

The answer to this depends on how the title to the property was held. There are two possibilities.

If you and your brothers owned the property as joint tenants, this carries with it a right of survivorship for each owner. Each owner owns the whole thing. When one owner dies, the others still own it, so the deceased person's name simply comes off the title. Whereas before there were five people who owned it, now there are four.  That means the children of the deceased brother would get nothing.

If the property is never sold,  eventually there will be only one owner left. That last owner will own 100% of the property and there is nothing legally to go to the families of those owners who were deceased.

The other possibility is that the five of you owned the property as tenants-in-common. This arrangement would have quite a different effect when an owner died. With this arrangement, the 1/5 share owned by the deceased brother would go to his estate (and without a will, that probably means his spouse).

Most people think that the fact that there are five names on a title automatically means that there is joint ownership, but that is not true. Whether you are joint owners or tenants-in-common would have been decided at the time the property was put into your names (I assume on the death of your parents). To know for sure which arrangement applies to you, get an updated copy of the title from the Land Titles Registry and read it.

It might be a good idea for you to use a lawyer for this transaction, whether you are selling the property or changing the title to add your brother's heirs. Most likely the transfer into your five names was done without one (and for sure the advice to leave a house to five kids didn't come from a lawyer, or I certainly hope it did not). 

There may well be surprising tax consequences to a sale of the property. I assume that all five of you do not live in the property, and that at least one of you owns his or her own home that is not the property in question. Therefore, the sale proceeds of those who have a principal residence that is not this property may well be taxable. You'll want to sort out whether the tax burden is to be shared by all of you, or more likely, attributed only to the one(s) who attracted the tax in the first place. It's pretty complicated to figure out without help.

There may also be family law issues if any one or more of you five ever lived in the property with their spouse even for a very brief time, as there may be rights arising for those spouses under matrimonial law. These rights could prevent you from selling the property, or at least cause you to need some extra paperwork to deal with them.

Parents who are thinking of leaving their house to all of the kids, please take note of this latest example of why this is a bad idea. Stop causing these problems for your kids!

1 comment:

  1. Hey Lynne!
    Have been reading up on your blog re. Title and estate law. I guess you are at capacity on that blog and cannot read my question on there, so I am posting on here.
    I wanted to purchase a townhouse back in 2001. Since I couldn't get approved for a mortgage alone, my mom agreed to go on title with me. My sister refused when asked if she wanted to be part of the purchase. Townhouse acquired, my mom and I took title as joint tenants, and contributed towards closing and down pmt. My sister, mom and I moved into townhouse. My mom and I paid for most of the expenses and mortgage, the exact percentage of what each paid is not known. My sister helped with groceries etc, and most of the furniture etc in the house was financed by me. My sister got married and moved out in 2008. My mom and I still live at the townhouse, with me paying for all the bills and mortgage. My mom contributes a portion towards the mortgage.
    Now: My mother is in her 70's, and I've had a falling out with my sister, and although she never said anything about a claim toward the townhouse, I fear that might change after my moms passing (god forbid). My mom has always maintained that the house is mine alone and fears that the house might cause an issue between my sister and I down the road. She is in the process of writing up her will, where she will equally divide all her bank items between us. She/we want to make sure that my sister doesn't have a claim to the townhouse. I have read on your blog that something in writing stating that her intent is for me to have the house or more specifically to state that my sister should have no claim to the house would suffice. Is that correct? What do you suggest needs to be documented or done to prevent my sister from having any claim towards the house? Anything specific needs to be put in her will? Does it have to be done by a lawyer or can she simply write it out and sign it with a witness present? Any suggestions will be appreciated!! Thanks again...Have a great thanks giving weekend!!


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