Thinking about death is something most of us prefer to avoid. Given our reluctance to plan for the unthinkable, it is unsurprising how few Canadians have a contingency plan for the end of their life. Luckily, getting to know the ins and outs of estate planning is easier than it seems. In this guide, we will cover the basics of mortgage inheritance in Canada, debunk some common misconceptions, and arm you with the knowledge you need to set yourself and your family up for continued financial success.
In Canada, the easiest way to guarantee your assets, including your home, are inherited the way you want them to be, is by setting up a will. While it may seem morbid to set up your will if you are still in the early stages of your life, dying without one can have disastrous consequences.
If you live in Ontario and are in a serious relationship/common-law partnership, but are not formally married, your spouse cannot inherit your home without a will. Furthermore, your legal spouse and children, if you have them, will be awarded your estate, but your grandchildren will not receive anything without a will. Finally, if you do not have a spouse or next-of-kin, your entire estate will go to the Ontario government, unless you specify an appropriate recipient in your will.
As you might have deduced, resolving matters of mortgage inheritance can be incredibly frustrating without the presence of a will, and as such, it is never too early to set one up.
Once the matter of property inheritance has been resolved, there are a number of logistics to be considered. The first thing to note is that there are no inheritance taxes in Canada. This means that you do not have to pay in order to take over a property. However, if you decide to sell the property, you will have to pay capital gains tax on the profits you make on the sale (after any outstanding mortgage debt is repaid).
Another important fact is that in Canada, mortgage debt remains with the home. When one owner of the home passes, the debt passes on to the next inheritor of the home, should they choose to accept the property. As the new owner, you will be responsible for all the property taxes, repairs, mortgage payments, and insurance payments that are associated with the property. If the previous owner of a home had mortgage insurance, their outstanding balance may be paid off by the insurance before the home is inherited, but it is important to verify these details with your specific mortgage insurance provider.
If you have co-inherited a property with other family members, it may be difficult to determine logistics around whether to sell or keep the home. In this case, it may be helpful to consult a lawyer to ensure the division of assets is fair and profitable.
If you choose to keep your inherited home, and there is an outstanding mortgage balance, you have two options. You can either keep the existing terms and lender associated with the home’s mortgage, or you can refinance. In either case, you will be required to provide your lender with information that demonstrates your ability to continue paying the loan. This may include proof of income, credit score, and debt repayment history. To learn more about your mortgage options, it may be helpful to set up a consultation with a Clover Mortgage broker.
In order to set your affairs in order, and ensure your home is inherited by the appropriate parties, it is important to plan your estate in advance of your death. Here are a few common steps you may want to take in order to ensure a smooth transition of assets after your passing:
One of the primary concerns when it comes to mortgage inheritance is the financial security of your family. Although this may be a scary scenario to plan for, preparing yourself and your family for an unexpected death can help you avoid severe financial consequences in the event of a tragedy.
The first step is to begin having open discussions with your family about your mortgage and estate plans. Ensure they are aware of the details of your plan, and know where important documents are kept. You may also want to consider purchasing mortgage insurance or life insurance that can cover the outstanding mortgage balance, providing peace of mind to your family.
Another common strategy is to build an emergency fund. This can help your family cover unexpected expenses, including mortgage payments, in case of unforeseen circumstances. If you do set aside an emergency fund, make sure at least one member of your family knows how to access it in the event of an emergency.
You can also work with a financial advisor to create a comprehensive financial plan that takes into account your mortgage, other debts, and long-term financial goals. Clover Mortgage brokers have experience working with over 60 different lenders and over 100 different mortgage products. By consulting a professional, you may be able to find the lender and mortgage agreement that best aligns with you and your family’s long-term financial goals.
By looking to further understand the process of mortgage inheritance in Canada, working with professionals, and engaging in effective estate planning, you can navigate this challenging aspect of life's journey with confidence and care.