Probate fees will apply
While real estate fees are quite common, many people may not be familiar with probate fees.
Probate is the court process by which an executor is chosen to deal with a deceased person’s estate. If the deceased person’s beneficiaries wish to benefit from the estate, then the probate process is necessary whether or not the deceased had a will.
“If probate can be forgone is mostly determined by what kind of assets the deceased has. For example, if the deceased person owned everything jointly with his or her surviving spouse, then no probate is needed because the surviving spouse already has title by right of survivorship,” says Jennie Lin, a Markham-based real estate and business lawyer.
“Each person’s situation is different and should be reviewed with a lawyer.”
Probate fees will differ by province. Manitoba and Quebec don’t charge probate fees at all. There’s also no probate for estates with a low value (typically $50,000 or less). Meanwhile, most provinces charge a fee of about 1.5% of the estate’s value, or a flat fee.
Avoid legal troubles by picking an executor
Some people decide to put all their children as executors, but that could be a huge mistake.
Things can get complicated if one of the kids of the deceased has different opinions on what to do with the home. In most cases, having a will in place would make it clear to the adult children what their parent’s final wishes were.
“It would save a lot of hurt feelings, and possible litigation against the executor and the estate,” says Lin.
“Drafting a will for clarity, as well as talking to your executors and beneficiaries about it, are key.”
Appointing one executor who you think will make the fairest decisions will make things less complicated and avoid costly legal disputes.
Real estate agent fees can eat into your return
Home prices across Canada have increased significantly over the last few decades, but fees for real estate agents have remained the same. For example, in Ontario, the standard fee is 5% for the seller (no fees apply for the buyer).
The average price of a home in the Greater Toronto Area was $1,095,617 in February 2023. That means the commission paid was an average of $54,780.85. While markets have cooled, $54,000 can be a big loss for a seller that might be financially strapped.
“These days, it makes so much more sense to use an online platform to sell real estate,” says Del Degan. “The human aspect of these types of transactions is not that important.”
Since Del Degan didn’t feel the need for a human touch, he opted to use an online marketplace — Bode — to sell his mother’s home. Bode is available in Toronto, Alberta and most of British Columbia.
Anyone located outside of those areas can also use forsalebyowner.ca. This online marketplace allows you to sell your home directly to buyers. You just pay a flat fee for the listing, which varies by province. Listing options range from $225 to $549 in Ontario and Alberta, and drop to $149 to $248 in Newfoundland and Labrador.
To be fair, online marketplaces don’t guarantee a better deal. There’s always a chance that a real estate agent can sell your home for a better price, which would offset their commission. However, Del Degan appreciated the simplicity that Bode offered. He also liked the lower fees, which came out to just 1% for the sale of the house.
Taxes may still apply
When it comes to taxes on selling a home, how much you’ll pay depends on the situation.
“If a parent passes away, they are deemed to dispose of their personal residence at full market value at the date of death, and the children are the beneficiaries,” says Warren McCann, chartered professional accountant and partner at McCann & Associates in Toronto.
“This capital gain (profit) can be fully sheltered if the home is designated as a principal residence for the years of ownership.”
The key part to note is that the principal residence exemption applies to the home's value at the time of death. If the home was worth $700,000 at the time of the death, and sold a year later for $750,000, capital gains would apply to that extra $50,000. Since most parents would have named a child to inherit the home, that child is responsible for the taxes.
A beneficiary could also be responsible for any capital gains from the sale of an investment property as well.
How to minimize taxes for beneficiaries
Naturally, many parents and homeowners will want to consider tax strategies to minimize what they potentially owe.
“If parents have real estate not sheltered by the principal residence exemption, they may wish to consider transferring to their children if the real estate is going to be held beyond his/her [the parent’s] death,” says McCann.
“If the property will be sold during the planned lifetime of the parent, I would not consider transferring it. This intergenerational transfer may cause tax implications as the transfer will cause a disposition at full market value.”
In an ideal situation, an aging parent will have their will updated and have spoken to their children about their plans. They could then consult a lawyer and accountant to minimize their tax burden. By having all of their affairs in order, there will be fewer things for the executor to worry about.
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