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Inheriting a Property With Your Sibs, What Are Your Options?

Inheriting a Property With Your Sibs, What Are Your Options?

Siblings With Inherited Property

When you inherit a house or property, especially if you inherit one with siblings, dealing with these assets is often not the first thing on your mind after losing someone close to you. But, unfortunately, finances come into question almost immediately, including wills, taxes, and funeral expenses. There are also many complex legal and financial issues to deal with, especially if you’re inheriting a house with multiple heirs. Even if you’re close to your sisters or brothers, inheritance issues can cause a rift that will last for years so I’m here to offer advice along the way to try to ease your stressors and guide you through.

There are several options open to you when you inherit a property – one of the siblings could buy the home or cottage, you could agree to sell and split the profits, or you could use it as a rental income property that you divide between you. No matter which path you choose, it’s important to consider the financial implications of each option or idea.

When An Inheritance Property Is Involved, Be Sure There’s A Plan In Place

Whether for yourself, your parents, or someone else close to you, it’s important to have plans in place. According to Statistics Canada, only 55% of Canadians have a will. A will ensures that your assets are distributed according to your wishes. Without a will, dividing assets becomes a more complicated, costly, and a stressful process for your family and loved ones which can become a bigger problem when a property is involved. 

Do Canadians Pay Inheritance Tax?

In Canada, you don’t pay a direct inheritance tax when inheriting a house with siblings. However, you might still have tax obligations when you sell the property. Upon the previous owner’s death, the estate is considered to have “sold” the property to you at its fair market value, which becomes the new “cost basis.” If you later sell the property and its value has increased, you’ll owe capital gains tax on the difference between the sale price and the cost basis. So, while there’s no inheritance tax, you may face capital gains tax when you sell the property.

Common Challenges When Inheriting a House with Siblings

Siblings often have different plans for inherited property. For example, one sibling might want to sell the house quickly to cover financial needs like paying off debt, funding education, or investing elsewhere. Meanwhile, another sibling might have a sentimental attachment to the house and prefer to keep it in the family. This can make selling emotionally difficult for them. To decide whether to sell or rent the inherited house, siblings should discuss their timelines and priorities openly to understand each other’s needs and constraints.

Selling The Home and Splitting The Profits

When selling an inherited property with siblings, it’s important to stay calm and objective. Family dynamics can become complicated when money is involved, so listening to everyone’s opinions without letting emotions take over is crucial. Treat the sale as a business transaction: clearly outline your goals and write down what you want from the deal. This approach will help make the process smoother and more efficient for everyone involved.

It’s also a good idea to agree on who will be managing the maintenance of the Inherited house before it sells. This involves ongoing expenses that are often underestimated, so the sooner you make the decision to sell, the better. Routine tasks like lawn care and minor repairs, as well as larger costs such as plumbing or electrical updates for older properties, will need to be managed. Utilities like electricity, water, and gas add to the financial burden, along with recurring expenses such as homeowner’s association fees and insurance premiums.

Adding a couple of real estate agents or advisors into the mix can add complexity and stress among siblings too. Realtors often suggest renovations or repairs to make the property more marketable, which can increase its value but might also require significant time and money. Decisions about these repairs can lead to disagreements, especially when siblings have different views on what is necessary to help get the most for the property on the market. To manage these expenses without burdening the heirs, you might consider taking out a short-term home equity loan. That way you can pay off the loan once the home has sold and the cost of repairs will be deducted from capital gains when you file taxes so that the costs for renovations and fees don’t come directly out of the new owners’ pockets. 

Things To Think About When Buying The Inherited Property From Your Siblings

If your siblings agree to sell you the home, there are a few things you will need to look into:

  • Discuss and document all fees, expenses, and taxes involved in the sale so everyone knows the costs and how they will be covered.
  • Get an objective, professional appraisal from a qualified property appraiser or trusted real estate agent to ensure the home’s value is fair and transparent.
  • If there’s an outstanding mortgage, the estate must pay it off before dividing any remaining equity. This reduces the amount you and your siblings will share.
  • Even if relations are good, seek legal advice to navigate any potential legal issues in advance of them coming up.
  • Securing funds to buy out your siblings can be challenging. A new mortgage is the most common option which is why working with trusted a mortgage broker like myself can help you find the best loan options for you, including first-time homebuyer government incentives if you are eligible.

Before You Turn Your Inherited Home Into An Investment Property…

If you and your siblings want to maintain ownership but don’t want to move into the house or cottage, you can rent it out. You and your siblings can work towards building long-term wealth for yourselves and future generations. Real estate investments can appreciate over time, providing a valuable asset for the family.

Just remember, entering into joint investments with siblings carries the risk of financial disputes and disagreements. It’s best to appoint one sibling as the contact point and manager for the property and enter a legal agreement so that everyone is on equal ground. You may need to take out a home equity loan to cover repairs and upgrades to the property to make it safer and more appealing to renters. You’ll want to make sure who pays for those costs and how is also laid out in your legal agreement so that if disagreements arise, you have a set document to help settle them.

Can Siblings Force You To Sell The Inherited Property?

The simple answer to this is, yes. If your sibling, or siblings, wants to sell the property and you want to keep it, they can apply to the court for a partition action. It’s often better to buy them out. If you don’t have enough money in your savings or investments, talk to a mortgage broker about the options for getting a private home loan. Or, at the very least, ask them for advice on how best to fund the purchase. 

To avoid this stressful situation, you could negotiate with your siblings to rent the property and share the rental income or you might look at a rent to own agreement where you buy it out over a longer period of time. If a partition action is pursued, the majority cannot decide to keep the property against the will of the one who wants to sell. It sounds a little odd but, that’s the way it goes.

If You’re Inheriting A Property, Call Me And I’ll Help You Figure Out Your Next Steps 

If you know that you and your siblings will be inheriting a home or cottage, or if you’ve been named in someone’s will and aren’t sure what to do next, give me a call. I can sit down with all of you to provide the financial advice you need, as well as offer mortgage and home equity options to help you fund any purchase needed along the way. With my help, you can avoid a fair amount of family stressors and get advice from an expert you can trust before you make any big decisions or plan your next step. Reach out to me today at 705-315-0516, or book a consultation with me online, and let’s come together to make a plan that all siblings are on board with.

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