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Should you buy your parent's home to dodge probate?
Q: My dad wants my brother and I to buy his home in order to avoid probate.
I would like to see him keep his name on his home until he dies.
He said he has a living trust and a living will.
He has been told things need to go through probate and there will be more costs that my brother and I cannot afford.
Solutions?
—Katherine
A: When someone dies in Canada, certain assets they own are subject to probate. Probate is a court process that confirms an executor’s authority in a will to distribute the assets of a person who has deceased. There is a fee to obtain probate.
Jointly held assets or assets that have named beneficiaries will generally avoid probate.
Probate fees differ by province. Notarial wills in Quebec have no probate fee. Estates in excess of $250,000 in Alberta, Northwest Territories and Nunavat have a flat fee of $400. Ontario takes the cake at 0.5% on the first $50,000 and 1.5% on the excess. A $1 million estate in Ontario would, therefore, attract probate fees of $14,500.
Your father has good intentions, Katherine. If he owns a home in Toronto or Vancouver, probate fees could be tens of thousands of dollars.
However, I worry that the advice he has received may not have considered all factors. You see, probate is only part of the equation.
Ask a Planner: Leave your question for Jason Heath »
If you and your brother buy his home, of course, you need to come up with the money to do so. I am assuming if you and your brother cannot afford to pay the probate fees on your father’s death, coming up with the cash to buy his home would be that much harder. Your father could take back a mortgage for the full purchase price, I suppose.
Would he then rent the home back from you, Katherine?
More importantly, when you buy a home, even if it’s from a relative, you will have to pay land transfer tax and legal fees. For example, in Winnipeg, you would pay $4,720 in land transfer tax and $1,130 in legal fees to buy a $350,000 home. Your father’s probate fee savings would be only $2,450, but it would cost you $5,850 to do so.
Furthermore, if you and your brother own your homes, your father’s home would likely not be claimed your principal residence. The increase in value from when you buy it until when you sell it would be taxable as a capital gain, Katherine.
Your father could transfer his home into your names. It doesn’t sound like you want that and if I were your father, I wouldn’t want that either. It would amount to an outright gift and if you or your brother had a marriage breakdown, creditor issues or just wanted to sell the house, poor Dad could be out on the street – literally.
Your father mentioned he has a living trust and a living will. I think you want to clarify what he means by this. His living trust may be an inter vivos trust and if so, it may qualify as an alter ego trust. An alter ego trust that holds assets for someone over the age of 65 with no other beneficiaries during their life other than them may avoid probate anyway. So you may want to clarify if your father does indeed have an alter ego trust and if that trust owns his home. His probate fee worries may be all for naught.
A living will, personal directive or power of attorney for personal care doesn’t have anything to do with probate, Katherine. They are documents that outline your father’s wishes for medical decisions and treatment in the event he is incapacitated. A living will simply outlines these wishes, whereas a personal directive or power of attorney for personal care appoints someone to carry out these wishes.
If your father has come to you and your brother to consider buying his house, there is a good chance that you are named as the trustees of his “living trust” or as the decision-makers of his “living will” (assuming it is a personal directive or power of attorney). If you guys don’t know what these documents are, what they say or what your roles are, I’d say there’s a breakdown in communication on important issues between you and your father, Katherine.
You should at the very least be asking your father some questions about what he has in place now and at the very most, take an active involvement in helping him understand his options. It sounds to me like he’s received a generic recommendation to consider the probate fees on his death, but could use some comprehensive professional input that considers all factors.
Ask a Planner: Leave your question for Jason Heath »
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.
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I had similar problems when mom passed. I had just retired, and mom had a medical problem while i was house hunting, since my area of choice was near her place, i put my stuff in storage and stayed with mom to help her out and continue looking.. It turned out i could not find a suitable place and was there 9 months (mostly because of helping her, etc. which took up time and very few places to view. In that time, my 42 yr old son had a heart attack. 3 days before he was to go for bypass surgery, mom died. So i ended up homeless, critically ill son recently retired so stress levels as high as could be. mom died in afternoon and the next day my sister(executor) calls and says she’s sending a realtor to just check out the place.I wonder just how long she had to sell the house that we had put in her name. I wasn’t asking months, just a few days to land after my mom’s death and pending surgery of my son a few days after. Real Estate sales in the area were at a high so we were pretty sure it would sell fast, which it did, in a week. Would it have mattered to give me maybe just 2 days before worrying about a realtor coming there when i was living there and nowhere to go. Even at bare minimum i would have had to prepare by moving stuff around when i was trying to keep track of my business/paperwork etc. I wonder how much time we had to sell when she died and it was in my sister’s name. Just had a comment that it was right that she had to start less than 24 hours with a realtor. Besides I was leaving after son’s surgery; I was going to stay with him to help him recover. It upended a lot of family; I have 6 siblings. I had moved most to storage but had some things i didn’t store, which were in basement. After i went to my sons, I was locked out of moms and couldn’t check my belongings and to this day I’m not sure where some things went.
Really lots to this, which is too long for this comment section of course. thanks for information. I should have a few rights when i was living there and caring for mom, besides.