The emotional stress of deciding how to deal with an inherited estate when a parent dies can already be quite high, but when siblings are involved and the terms are disputed, it could lead to legal or financial repercussions.
We often deal with people who have inherited a portion of a parent’s estate and need help sorting out the financial arrangements to sell their portion or buy the remainder of a home from a sibling. It can be quite complicated but we're here to help make sense of it all.
According to Statistics Canada, only 55% of Canadians have a will. A will ensures, among other things, that your assets go to who you want, and are divided as per your wishes. The lack of a will makes any division of assets a more complicated, costly and stressful process to manage for family and loved ones.
In Canada, there are no taxes applicable on property that you inherit. However, if you are buying out siblings or planning to hold onto the property, there will likely be some tax implications. In these types of situations, it’s always advisable to work with a trusted financial professional, such as an accountant.
Before applying for a mortgage
Once your sibling has agreed to sell the home, you must understand a few things before reaching out to us to help get you pre-approved for a mortgage or funding to buy them out.
If the property is passed down to more than one sibling, then its best to put down on paper and discuss exactly what fees, expenses and taxes are involved in the sale process so that everyone is aware of any extra costs and that everyone has the same understanding regarding how they will be paid.
It's important to get an objective, professional, qualified property appraiser or a real estate agent you all trust to assess the value of the home – not a friend or family member. If one sibling wants to be bought out and the other wants to hold on to the property, the valuation needs to be unbiased, fair and transparent. At Alterna, we have of a number of approved appraisal partners who provide a comprehensive valuation of all properties before they can be approved for financing.
If there is an outstanding balance, the estate is responsible for paying that off before any additional funds are drawn from the equity derived from the sale. That means the actual inherited amount you and your siblings will share will be reduced by the balance owed on the mortgage at the time it is inherited.
Even if you and your sibling are getting along, it's best to seeks legal advice to navigate potential legal issues that arise.
Finding the funds to cover the purchase
The most difficult part of the process can be finding the money to pay out your siblings. While securing a new mortgage and paying your sibling using those funds is the most common option, there are a few other ways.
Savings and investments
Savings or investments can be used to pay for the buyout. Depending on the type of investments, you may be subject to penalties or taxes by withdrawing the funds. We can walk you through the risks and benefits of selling investments to secure your share of the property.
Make it an investment property
If you want to maintain ownership but don't want to move into the house, you can rent it out. The rent you will generate becomes part of the mortgage equation and can make it easier to be pre-approved.
Dealing with an inheritance can be stressful, however, with some planning and careful management of the process of buying out your sibling’s share of the estate, you can maximize the gift left to you and minimize costs and conflict. Give us a call, we're happy to help.