You’ve just lost a loved one or had to move a parent into a new assisted housing arrangement and as a result you’re inheriting a home. Dealing with their property involves a lot of responsibilities that you may or may not be prepared for. Whether you decide to retain the property or place it on the market, the intricacies of managing someone else’s real estate can be quite overwhelming, especially when coupled with the array of emotions you’re likely already feeling.

In this era of rising real estate values, many people are now choosing to hold onto their inherited properties. But what’s the best way to handle the property once it’s in your possession? There are really only a few options to consider: retaining ownership, renting it out, or opting to sell. And, each avenue comes with its own array of advantages and drawbacks.

Your first smart step forward is to seek the guidance of a financial advisor, mortgage broker, and realtor who collectively can look at your existing assets along with the property you’re inheriting to help you figure out the best path for your specific situation. As an experienced mortgage broker in the Barrie area, and a financial advisor I can check two of those off your list. To get you started as you contemplate the way forward, these are some crucial factors to take into account while looking at the bigger picture.

First Things First – What Are Your Options When Inheriting a Home?

In most cases when someone passes away, the person’s children are the ones inheriting the property and are the executors of the estate. They will need to settle the estate and go through the legal process that entails any required probate and tax filing with the government. After this, the executors can choose what to do with the property. 

After the general paperwork is completed — you can sell the home, keep it for personal use like a vacation home, or rent it out as a source of income. It’s important to consider the use of the property, and what that will mean for you in terms of expenses, maintenance, insurance, and taxes before committing to any one option. If you want to get an idea of what your budget would need to be to support keeping the property use my purchase calculator.

When one or more heirs are involved, such as siblings, it can get tricky when deciding if a home should be sold or co-owned. Maybe one sibling wants to keep the property, while the others want to sell it or be bought out. In this case, that sibling may need a mortgage to pay out their co-inheritors. If the inheritors want to co-own the house and use it as an income property, they will need to agree on the regular upkeep costs, management and expenses and get a formal agreement put in place to cut down on possible future squabbles. 

If you decide to move into the home or intend to use it as a rental property, will it need repairs or upgrades? Using a home equity loan will give you the capital you need to do necessary renovations and bring the property to a higher standard. If there’s no mortgage attached to the property, a HELOC is a good solution.

Understanding Taxes and Expenses In Relation To An Inherited Property

If you inherit a home that the person who passed away lived in as their main residence, you generally won’t have to worry about taxes. But things can get a bit more complicated if the home was used differently, like as a rental or a vacation home — if it was, you might need to pay some federal taxes.

Now, the good news is that Canada doesn’t have an inheritance tax. However, there is a capital gains tax that you might need to consider. This tax starts counting from the time you inherit the home if it wasn’t the primary residence of the person who passed away. The government calculates the difference between the property’s value when you inherited it and the value when you sell it. The growth in value during that time is what you’ll be taxed on.

Sometimes, there are other costs tied to inheriting property. For instance, in some provinces, there’s a probate fee—a small percentage of the estate’s worth—that you might need to pay. Talking to an experienced accountant might be able to help you minimize costs in relation to the tax you may have to pay. And if you’re thinking of keeping the property as a vacation home or renting it out, there’s more to budget for. Think annual property taxes, insurance, utility bills, maybe condo fees if they apply, and regular upkeep expenses.

Plan Ahead In Your Will

If you’re thinking about giving someone property as an inheritance or will become the beneficiary of property, pre-planning is never a bad idea. To avoid potential conflict, talk to a lawyer to set up executors and beneficiaries of your real estate. As part of the pre-planning process, if you have a property that is subject to capital gains, you should keep records of the improvements and renovations done, as well as the original purchase price. 

Consult An Expert Mortgage Broker

If you’re considering the sale of an inherited property or want to look at the different options, and their impact, and if you may or may not need a mortgage, call me, Darren Robinson, at 705-315-0516 for support and advice. You can also book an appointment with me online so that we can discuss your financial situation and any mortgage or loan options you might need, before putting together a financial plan for your inheritance property. Let’s put our heads together and find a solution that makes sense for you. That’s what I’m here for after all.