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Do I need a real estate lawyer if I inherit a house?

By Sean Schaefer

After inheriting a property from a parent, partner or family member, you may not know what to do next. If you grew up in the home, you will have emotional attachments to it that may cloud your judgment.

A range of issues must also be dealt with quickly, such as paying the mortgage and dealing with the costs associated with owning a house.

The major decision that will have to be made reasonably soon is: Do you keep the home as your residence, rent it to others or sell it? Each of those choices has legal implications. That is why anyone in this situation should seek the advice of a qualified real estate lawyer. They can guide you through the legal aspects of the transaction and avoid potential unwanted surprises.

The good news is that Canada does not have an inheritance tax, which means you do not have to pay inheritance tax on the value of the home you have been given. The costs you face beyond that depend on how you answer the own/rent/sell question. Let’s explore each one.

You decide to live in the home

If you want to make an inherited home your primary residence, you will have to assume all costs associated with it, such as utility charges and property taxes levied by the municipality. Before moving in, it is wise to hire a home inspector to evaluate the property so you have an idea of what should be updated or repaired.

Selling your existing dwelling to move into an inherited home could also have tax consequences if you have lived there for less than one year. This is another example of where you should seek professional advice so that you understand the benefits of any decision you are making concerning a primary residence.

The biggest cost may be associated with the mortgage on the inherited home. Depending on the terms of the gift in the will, you will likely be responsible for monthly payments, so determine if you can afford those recurring expenses.

If you have the funds available, the simplest tactic is to pay off the mortgage. Those who cannot afford to do so should look at refinancing the debt when it comes due, allowing for payments more suited to their budget.

If you lived in a condominium or a rental apartment prior to that, you must factor in the costs and tasks associated with home ownership. They may include, for example, mowing the lawn, tending to a garden and clearing the sidewalks in the winter.

Multiple successors to an inherited property

Problems can arise if multiple people, such as siblings, are named as joint beneficiaries of a home. This can create problems between them if one wants to keep the property and the other(s) want to sell it.

In this case, one sibling may wish to buy the others out. If they cannot afford to do that, they can arrange to pay monthly payments to the other siblings until the value of their share in the home is paid off.

The legal considerations to structure such an arrangement will be complex, which is why it is good advice to seek the guidance of a real estate professional.

You decide to sell the home

If you already own a primary residence you will likely have to consider whether you will be required to pay capital gains tax when you sell the inherited property. That amount is based on how much the property appreciated in value since you inherited it since capital gains are viewed as taxable income in Canada.

Be sure to keep track of all financial records going back to when the property was acquired. These records and details will be needed to determine what you may owe in capital gains taxes. If you sell the home immediately after inheriting it, the capital gains will likely be negligible unless real estate prices sharply increase in that period. This is because the person who gifted the home to you is deemed to have disposed of the home at the time of their death.

You decide to rent the property

Alternatively, you may want to keep your existing home and rent out the inherited property to generate additional income. That can be a great idea but you must understand the complexities of the Residential Tenancies Act, especially if you have no prior experience being a landlord.

Some homes are better suited for rentals than others. For example, it may be easy to split the home into two apartments, each with a washroom and laundry facilities.

At the other end of the scale, perhaps the house needs expensive improvements to bring it up to a standard so that it would fetch a reasonable rent or meet requirements. In that case, treating it as a rental property may not be a viable option for you.

Finally, despite the hopefully rigorous screening process you had in place, you may end up with a bad tenant who refuses to pay rent or move out once they have settled in. Once again, the advice of a real estate lawyer may be able to save you aggravation, time and cost down the road.

Valuable items in the home are subject to probate

You also cannot assume that because you inherited the house you also inherited everything in it. Different estate rules apply.

Instead, valuable artwork, antiques, pieces of furniture, jewellery or paintings must be assessed and go through probate, which means that other beneficiaries may be entitled to them as well or instead of you.

Contact us for guidance

Given the complexities involved in inheriting a house, beneficiaries should always seek the advice of a real estate lawyer. Before making that visit, gather all legal and financial documents related to the property. That will reduce the lawyer’s workload and your final bill.

Real estate law is complex at the best of times but the team at Demas Schaefer is here to help. Residents of northern Alberta can contact us for a free consultation.

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