How to divide the assets of an estate between beneficiaries

First, it bears mentioning that wills typically provide discretion to the trustees to sell, call in or convert into cash any part of an estate in their absolute discretion. The trustees may also have the ability to postpone a sale if they think it’s best. For example, that could be the case if market conditions made it inadvisable to immediately sell a real estate property, business assets or investments.

An estate trustee typically has the discretion to distribute specific assets to beneficiaries as part of their share of an estate. In other words, if one beneficiary wanted a real estate property, they may elect to receive a smaller share of the rest of the estate, like cash proceeds from bank accounts or from selling other assets. If the real estate value was more than their share of the estate, they may be able to buy the asset from the estate, paying the incremental amount over and above the value of their share.

It sounds like your parents’ estate has already been distributed to you, though, if your own names are now on these properties and accounts. As such, you should have free rein to do as you wish.

Should you hold on to assets jointly or sell them?

In my experience, it’s more common to sell all the assets and distribute the cash that remains (after paying taxes and estate costs) to the beneficiaries. So, your parents’ wishes may not have been so literal as to continue to hold all of their assets jointly.

Real estate could be distributed to multiple beneficiaries directly rather than sold if the property holds sentimental value, such as a family cottage or farm. This would be less likely with estates like your parents’, which includes five properties, at least a few of which are presumably rental properties.

There’s no tax advantage to continuing to hold the properties or the accounts, either. For a couple, tax is payable on the second death.

Should you hold property as joints tenants or tenants in common?

If you and your siblings want to continue to hold the real estate as investments, Lisa, you could do so jointly. You could own the properties as joint tenants with the right of survivorship, in which case the surviving two siblings would inherit the property upon the first death. This would be uncommon for siblings, though.

You could alternatively own the properties as joint tenants in common, which would give you control of the asset even upon your death. You could then leave your share to your spouse or children, for example. This is usually preferred to leaving your assets to your siblings, but perhaps none of you have spouses or children. Even if you do not now, you might in the future.

For real estate you own jointly with your siblings, you could consider a co-ownership agreement that addresses disagreements between parties (for example, if one of you wants to sell but the others do not), funding renovations or other expenses, or situations like disability or death.

Although you could set up a trust to hold these assets, it may be onerous and unnecessary, Lisa. A trust has up-front and ongoing legal and accounting fees that amount to thousands of dollars per year. There’s no tax benefit with a trust, either. A co-ownership agreement would be a one-time cost. Selling and dividing the proceeds or at least agreeing to take one property each as part of your inheritance could be the easiest option.

Should you designate a primary owner or a successor holder?

You mentioned the investment accounts are each held with one of you as the primary owner and the other two as successor holders. You can only name a successor holder for a tax-free savings account (TFSA), and even then, it can only be your spouse. You can name a non-spouse as a TFSA beneficiary. You cannot generally name a successor holder or beneficiary to a non-registered account, which is most likely the account type you have.

As such, your accounts are more likely joint accounts. This arrangement leads to complexity with managing the accounts, tracking cost bases for capital gains tax purposes, managing different risk tolerances or withdrawals, and so on. So, for the investment accounts, in particular, I would be inclined to divide the money and take one-third each to invest in your own names how you want.

So, how should you divide the assets?

You mention that you are all beneficiaries of each other’s wills, but that intention could easily change in the future. You may have partners, spouses or children, let alone friends or charities you wish to name as beneficiaries.

So, despite being well-intentioned, I think continuing to hold all of your parents’ real estate and investment accounts jointly, and naming each other as beneficiaries of your estates, may not be the best approach. I would consider dividing the investments at least, and potentially the real estate as well. If you continue to hold one or more real estate properties jointly, consider doing so as joint tenants in common with a co-ownership agreement in place. This may provide better future flexibility and discretion to do your own estate planning without impacting each other.

You should seek out tax and legal advice on all of this, Lisa, as this is a complex and unique arrangement with your siblings.

Read more from Jason Heath:

• Reducing capital gains on a cottage
• When your child moves into your rental property
• Should you use home equity to buy a house for your kids?
• How spouses with joint accounts should claim capital losses
• Who to name as executor when family members aren’t an option

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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