Tag Archives: Last Will and Testament

What happens to a home or mortgage when someone dies? Many Canadians don’t know

What happens to a home or mortgage when someone dies? Many Canadians don

Despite our best efforts to distract ourselves from the inevitable – a cultural landscape built on invincible superheroes and the glorification of youth, a willingness to ignore the slow-motion destruction of the planet, the power wielded by religions that promise eternal life in exchange for free will – death, folks, is coming for us all.

Canadians who think their properties will automatically pass to their descendants when they die could be in for an unpleasant surprise if they come back to haunt them. As Bury explains, if a homeowner dies without a will, or with a will that somehow fails to specify who the deceased’s property is meant for, what happens to the home becomes a provincial decision. Each province has its own formula for distributing the deceased’s assets that takes priority over the dead person’s wishes.

Many readers, particularly those who help Canadians purchase homes, may have the impression that homeowners instinctively recognize the necessity of including their properties in their wills long before the reaper gives them a lift to the other side. But new data from Angus Reid and online estate planning platform Willful shows an alarming lack of knowledge among Canadians when it comes to what happens to their properties and their mortgages after they die.

When asked “Do you know what happens to your home if you pass away without a will?” only 21 percent of respondents provided the correct answer, that it will be distributed to an individual’s dependents according to a provincial formula. The remaining 79 percent included people who mistakenly think their properties will automatically go to their spouse or children (48 percent) or to the government (6 percent), while 24 percent admitted they don’t know.

That lack of understanding is undoubtedly related to the fact that only 51 percent of homeowners surveyed reported having up-to-date wills. Thirty-six percent reported not having a will at all.

Willful CEO Erin Bury found the latter figure shocking.

“I expected that that number would be much better once they owned a home because as soon as you accumulate a large asset or you get married or you have kids, those are the inflection points that cause you to think about getting a will,” Bury says.

The fact that Canadians are in the dark about after-death planning with regard to real estate is somewhat less surprising. There are always barriers preventing people from putting a will together, from an unwillingness to confront one’s own mortality, to the costs involved, to the one thing that is almost as common as death itself: the human propensity to procrastinate.

“It seems like one of those things you can put off until tomorrow,” Bury says. “I’m a journalism grad – I don’t do anything without a deadline – and you don’t have a deadline for creating your will.”

At least not one anyone can truly be aware of.

Implications of ignorance

A misunderstanding of what happens to a person’s property once they’ve died can cause extreme distress, both financial and emotional, for her surviving family members.

Canadians who think their properties will automatically pass to their descendants could be in for an unpleasant surprise if they come back to haunt them. As Bury explains, even when a will lists a spouse or child as a beneficiary, each province has its own formula for distributing the deceased’s assets that takes priority over the dead person’s wishes.

“It may not actually be divided the way that you would want,” she says. “And if you have a common law spouse, unless they’re a joint owner of the home, they are not accounted for under that provincial formula.”

In most cases, the executor identified in a person’s will will be instructed to sell the deceased’s assets, although the executor has the power to do what they feel is in the surviving family members’ best interest. If Bury dies – her example! – and leaves the home to her husband, it’s unlikely that her executor would do anything beyond transferring the title and mortgage.

If a person dies and names no executor, things slow down considerably. In this case, the court will appoint an administrator to the deceased’s case. The administrator plays the same role as an executor, but because they don’t have the power to act until the court appoints them, descendants hoping to sell the deceased’s home could be waiting weeks or months until an administrator is in place.

Having an executor in place is a far better course of action. Administrators, Bury says, will seek guidance from a person’s beneficiaries, “but they do not have to listen to them.”

The survey also found that a majority of Canadian homeowners don’t know what happens to their mortgages when they die. Only 28 percent of respondents realize that their mortgage needs to be paid by the beneficiary who receives their properties.

“It does not disappear, unfortunately,” says Bury, although that’s exactly what 12 percent of survey respondents think happens to a mortgage when a borrower dies.

Property owners, particularly investors, must also keep in mind the tax bills awaiting their surviving family members. The CRA treats a dead individual’s assets as if they were all sold on the day prior to his death, meaning capital gains taxes on non-primary residents need to be paid – even if the home is left to a beneficiary. Joint ownership of a property with a spouse can provide a clean and legal work-around; otherwise, those left behind will need to foot the bill.

“Everyone works their entire life to leave this meaningful legacy for their beneficiaries,” Bury says, “and I’m not sure that Canadians really understand what’s going to end up in their beneficiaries’ pockets at the end of the day.”

It’s the unknowns that make death so scary. Having a will in place might not alleviate all of a person’s fears about the infinite void we’re all inching toward, but it can reduce the greatest one of all: Will my family be taken care of when I’m no longer around to protect them? 

Source: Mortgage Broker News by Clayton Jarvis 09 Oct 2020

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Who gets what in a blended family with no will?

Q: What happens if I die, was previously married and had a will—but am now remarried (blended family) and have not written a new will? What happens to my estate if I die? How is it divided? Does my new spouse get all the assets? Or is it split between all children (his and mine)? Or do just my own children and spouse inherit everything? Or just my children?

—Donna

A: Donna, You ask, “What happens to your blended family if you die?”

The simple answer is that no one knows. No one can give you an answer without knowing your specific circumstances. You cannot get simple answers to comfort you. I’m not trying to scare you, but you need to get advice.

There are so many variables that determine who shares in your assets. Here are some variables that only involve children when parents die:

Minor Children Suffer Most

  • What are the ages of all children (his and yours)?
  • Are you supporting any children?
  • Are any children financially dependent?
  • Do you need guardians for children who are minors?
  • Should trusts be set up to invest minor’s inheritances?
  • Is any child on government assistance?
  • Should discretionary trusts be used for spendthrift children?
  • Do estranged children have claims to your estate?
  • Did you promise to pay for their children’s education or wedding?

You can protect minors with a will and estate plan.

Government Rules May Divide Your Estate

What happens if you don’t take the time to prepare an estate plan?

The government has a will for you that cannot be varied.

Governments have rules to divide your estate among your next of kin. These rigid rules are not flexible. These rules dictate who controls your money and who is your executor. They also decide who gets what and when.

What about Spouses and Wills?

Another set of variables applies to your spouse.

  • What if your new spouse has more wealth than you?
  • Should your money go to your spouse or your children?
  • What if your spouse requires a full-time personal service worker?

You Need to Reduce Taxes

Government tax rules apply if you have no will. As you can imagine, the government does not give you any tax breaks. You will pay the maximum in income and probate taxes.

You cannot use any tax deferrals or tax reduction options. You need to learn how to designate some assets like tax-free savings accounts and registered plans. You may need to protect your assets from creditors or prior spouses.

All of these variables affect what your family receives if you die. These examples do not consider lawsuits from prior spouses. All lawsuits waste your money and incur legal costs and delays. Lawsuits also destroy families and wipe out estates.

Estate Planning Can Avoid Lawsuits

You need to consider tax, estate and family laws. You need good professional advice to get it right.

Remember: estate planning is what you do for the people you leave behind.

If you love your family, find the time and write a will.

Source: Moneysense.ca – by  

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