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Friday, July 30, 2010

Can I have my parents' house as part of my share of the estate?

The executor of an estate is usually given instructions in a Will that direct proportions or percentages of the estate to certain beneficiaries. For example, a Will might say "divide my estate equally among my three children", or "give 25% of my estate to my daughter". Most of the time, the Will doesn't say which specific assets go to each beneficiary. This is intentional, as most of the time we don't know at the time we make our Wills exactly what we will own when we pass away and we want to create flexibility.

This leaves the decisions about the distribution of certain assets to the executor. With a properly worded Will this decision becomes much easier. On occasion, a Will directs an executor to sell everything and distribute cash to the beneficiaries, but this is rare.

When there is one major asset in the family, such as a business or farm, the Will should give instructions about how to deal with that asset, and what to give the other children in the family who are not receiving that asset.

Most Wills allow the executor to use his or her discretion in allocating individual assets to individual beneficiaries. This is where the powers given to the executor in the Will become important. The Will should allow the executor to decide whether some assets are to be sold and others are to be given to someone as they are. It should allow an executor to roll some registered assets over to a spouse or disabled child. Where there is a gift to a charity, the Will should allow the executor to choose to donate capital shares rather than cash, if that is to the advantage of the estate.

It is possible for a beneficiary to receive his or her parents' house as part of his or her share of the estate, assuming there are no contrary instructions in the Will. For example, an estate worth $800,000 might be divided between the deceased's two children, so that each of them is to receive $400,000. If the deceased had a house worth $300,000, then one beneficiary could receive the house plus $100,000 while the other beneficiary would receive $400,000 in cash.

If, on the other hand, the whole estate is worth $500,000 and the house is worth $300,000, the house is worth more than one beneficiary's entire share. He or she can't inherit the house without making up the difference between the share and the value of the house.

Before deciding to transfer a house to a beneficiary, consider whether there are any tax consequences. If the house in question was the deceased's principal residence, there is no capital gains tax arising on the transfer of the house, but if it is a cottage or revenue property, there will be tax. If the tax is paid out of the residue, as it normally would be, this could mean that the beneficiary who is not receiving the house is paying some or all of the tax on it.

Also consider the contents of the house, as well as any sheds, garages, shops etc on the property. The contents may well be distributed separately in the Will, so the beneficiary should not assume that the contents are included.

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