What happens to real estate held only in your name when you pass away? – RMS Estates Law

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What happens to real estate held only in your name when you pass away?

RMS Estates Law
May 6, 2020

Whenever clients ask me about this topic, the fast and short answer I always give is that it depends. But one universal truth applies for everybody: the more taxes your estate will have to pay, the less money will be available to your beneficiaries on your passing.

The Income Tax Act (“ITA”) stipulates that death triggers a “deemed realization” at fair market value of non-depreciable capital property, depreciable capital property and RRSPs. This means that the estate will have to pay tax on capital gain on all the property noted above. However, the ITA has built in some exceptions, one of which is the outright transfer to a spouse or transfer to a qualifying spousal trust, also known as a “spousal rollover”. This means that the death of the first spouse constitutes a non-taxable event.

So, if you leave all your property to your spouse outright, or in a qualifying spousal trust, you defer capital gain until the spouse either disposes of the property by sale or is deemed to dispose of the property by death.

If you do not plan to leave your assets to a spouse, the ITA offers another exemption to paying tax on capital gain, called the “principal residence exemption”. However, in this case, only one exemption per family per year can be designated. Since many cottage properties hold significantly more capital gain than city residences, and one can qualify the cottage as a principal residence, it is important to make the most use of the exemption and to shelter the highest capital gain.

Another important consideration is estate administration tax (EAT). Holding the property in joint tenancy with someone else means that the survivor will inherit this property, which will pass outside the estate, thereby avoiding EAT, which is 1.5% over values of $50,000. Holding the property solely in your name, on the other hand, will trigger the EAT, which will have to be payable by your estate. The tax will be calculated on the fair market value of the property at date of death less any mortgage on the property.

One has to consider their own personal details when planning for distribution of real estate property on death. If you have any questions about this topic, I would love to help!

PLEASE NOTE THAT THE CONTENT OF THIS BLOG IS MERELY FOR INFORMATION PURPOSES AND DOES NOT CONSTITUTE LEGAL ADVICE.

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