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Tuesday, January 28, 2020

Do I have to put the property I inherited into my name or can I leave it in the estate?

A reader has asked a question that I've heard twice this week already, and it's only Tuesday! Since I hear it so frequently, I thought I'd share my comments with you. Below is her question and my response:

"I have inherited a property from my husband that is now in his estate. Do I have to change ownership or can I just leave as an estate?"

Do you have to? In the sense that nobody is going to arrest you if you don't transfer the title, no you don't have to. But as I have discussed a number of times on this blog, what you can do is not always the same as what you should do.

It's not unusual at all for clients and others to ask me whether they should bother taking a piece of real estate out of an estate and put it into their own name. They don't want to go to the effort and expense of the transaction and they don't see the advantages. I'd like to discuss this because failing to make the title transfer is the kind of thing that can have serious unintended consequences.

I will assume that the beneficiary in this case is also the executor. That arrangement is one that would give the person complete control over whether or not the property title is changed. It would mean that there are no other beneficiaries pushing for the estate to be wrapped up. I must also assume from the wording of the question that the property was not held in joint names. Otherwise it would not be in the husband's estate.

Is it a good idea to leave a property in the estate? Generally, no. I say this for a few reasons.

First of all is the issue of capital gains tax. If the property in question is the wife's only property and it's the one she lives in (as opposed to renting it out to someone else), then it most likely would qualify as being her principal residence. If she wants to sell it in the future or leave it to someone else in her will, the principal residence would pass from her to the new owner without any capital gains tax arising. That tax-free status will only apply if the property is in the wife's name. If it's in the name of the estate, the opposite is true. An estate doesn't get a principal residence. It's quite possible that the cost of transferring the title now will be less than paying the tax later.

Keeping an asset in the estate means that the estate is not closed and if there is a gain in the value of the property, Canada Revenue Agency may require the wife or her executor to file a tax return for the estate.

And speaking of selling. if the wife wants to sell the property at some time in the future, she is most likely going to have to file paperwork moving title from the estate to herself first anyway. Not doing the title transfer now is really just putting it off until later. This also goes for placing a mortgage on the property.

If the wife wants to leave that property to someone in her will but it's in the name of the estate, she doesn't own it and can't pass it on. In the worst case scenario, the executor of her estate may have to go back and finish off the husband's estate first. So she really isn't saving any effort or money at all.

Insurance may also be an issue. Some insurers will not allow a person who doesn't own a home to insure that home.

What are the advantages of keeping the property in the name of the estate? Perhaps delaying the transfer of the title would prevent creditors from putting a lien on the property, but the question from the reader doesn't mention creditors. From time to time I talk to people who have financial problems and believe that keeping a property in the name of an estate will keep the property out of the hands of a bankruptcy trustee. It doesn't work that way and the bankruptcy trustee can force the transfer of the title.

There seems to be little other incentive to leave the title as it is.

The bottom line is that putting off the transfer of the title can create legal and tax problems and restrict the wife's disposition of the property. As always with legal decisions, the risk of those problems occurring must be weighed against any benefits flowing from keeping the title in the name of the estate. In most cases, the better choice is to move the title sooner rather than later.

7 comments:

  1. John Bernard TraceyJuly 15, 2020 at 10:14 AM

    Hello If i inherited a house can i put it in my name during probate

    ReplyDelete
  2. Hi John,
    Depends on what you mean by "during probate". To me, that means while the documents are at the court being processed by a probate judge. But I'm aware that a lot of people think "during probate" means during the administration of the estate.

    If you mean while it's at the court, then no you can't. The title can't be changed until the court grants the probate for the simple reason that the land titles office won't do it.

    If you mean during the administration of the estate, in other words the year or so that it takes to handle an estate, and if the court has issued the probate grant, then yes you can. This is assuming, of course, there is enough in the estate to pay all debts and liabilities and the house you inherited is not needed to pay those.

    Final comment, you asked whether you can put it in your name. "You" can only do that if you're the executor, and as I mentioned, the house isn't needed for payment of expenses.

    Lynne

    ReplyDelete
  3. Hi Lynne,

    Your posts here have been very helpful to me as my father passed away a couple years ago without a will. I was able to settle most things without any legal hurdles, debts paid and no liens, but the house is still in the estate's name. Where I am the only beneficiary, is there a process to transfer that is similar to signing an affidavit for a vehicle title, or would I definitely need to apply for letters of administration to get the authority to transfer it? I'm in NB if it makes a difference.
    Also, is the process to take care of this doable by a layman with internet research? Or would you recommend hiring a real estate lawyer? Basically just wondering what the first step is in getting this settled in the least costly way possible, though I know there will be a tax on the value of the home when transferred.

    Thanks for reading, and Happy holidays!
    Denver

    ReplyDelete
    Replies
    1. Hi Denver,
      I do not know of any jurisdiction which will transfer a house out of a person's name without a grant of probate or administration (or the equivalent of it in other provinces). This is assuming that the house is in your father's name alone.

      You will have to go through the process of applying to the court.

      That's the first step. That step gives you the legal authority to transfer the property and allows the land registry to do the transfer.

      The second step varies from place to place but generally speaking the process is simpler and less expensive when transferring to a beneficiary than when selling on the open market to a third party. It's not as simple as transferring a vehicle by any means but still simplified. I've never done any real estate in NB so I couldn't say for sure which document you would need. Since you are the only beneficiary, you could probably take care of this yourself with a bit of research.

      With respect to tax: there should only be capital gains tax on your father's home if a) it was not his principal residence when he died, OR b) it gained in value since he died.

      Lynne

      Delete
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    ReplyDelete
  5. My cousin passed away and was living with his mom. The house was on his name, but his Will, everything was left to his mom. Im confused, does his mom have to probate the Will to change the house onto her name?

    ReplyDelete
    Replies
    1. If your cousin's name was the only name on the house, then yes, his Mom has to probate the will.

      Lynne

      Delete

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