From a death in the family, to the birth of a child, there are many life events that can trigger the writing or update of a will. The second most popular life change Willful users cite for creating a will is the purchase of a home. A recent study Willful commissioned from Angus Reid showed that 49% of Canadian homeowners don’t have an up to date will and 1 in 4 Canadians don’t know what happens to their home if they pass away.
Why do I need a will as a homeowner?
Just like home insurance, a will protects your asset in the event of an emergency. It ensures that your home will be left to the beneficiary or beneficiaries of your choice if you were to pass away, so they are able to benefit from the financial and sentimental value of your home.
In your will, you can either leave a property as a specific gift to a specific person, or you can leave it as part of your residue (everything that’s left after debts and taxes are paid, and specific gifts are distributed.)
What happens to my home if I pass away without a will?
When a person passes away without a will, they are considered to have died “intestate”. This means a provincial formula will decide how your home will be distributed (for example in Ontario, the first $200,000 of your estate goes to a spouse, the next $200,000 to a child, and so on). These provincial formulas also don’t account for common law spouses, so it’s even more important to plan in a will if you’re in a common law relationship. It also means your home will likely not be distributed to your beneficiaries the way you would have liked. Not to mention, passing away without a will means it will be time-consuming and stressful for your loved ones.
How does the type of ownership affect my home and will?
How your property is owned dictates whether it flows through your will. Here are the three ways you can own property and the impact it has on your will.
On your own
If you own a property solely under your name, when you pass away the property will flow through your estate and is covered by your will. Like any other assets you own, you can leave it as a specific bequest or it can be distributed to your beneficiaries as part of your residual estate.
Jointly with rights of survivorship
If you own a property jointly with rights of survivorship with a spouse or someone else, when you pass away the property passes directly to the other person (along with any mortgages or debt associated with the property that is co-signed). As a result, this property is not included in your estate and will not be governed by your will.
Joint with tenancy in common
If you own property as joint tenants in common, the property will not automatically be passed to the other owner. In this situation, you can gift your portion of the property to someone else through your will.
It is also important to note that the type of ownership can also affect taxes at the time of your passing. If your home flows through your will (ie. you own the property on your own), the CRA will treat your property as if you had sold all your assets the day prior to your passing. As a result, your estate may need to pay capital gains taxes associated with the property before it’s passed to the beneficiaries outlined in your will. Compare that to joint ownership with rights of survivorship, where your property would automatically pass to your spouse or co-owner. In this situation, they would only need to pay capital gains taxes at the time the house is sold in the future.
What happens to my mortgage if I pass away?
According to the Angus Reid study, 1-in-10 Canadians think their mortgage disappears when they die. This is not true! In Canada, the mortgage stays with the property not the person. If you own the property on your own, your mortgage is paid by the estate when you pass away. If your home and mortgage is jointly owned, it is transferred to the other person who owns the property.
Do I need to update my will when I move?
Moving is a great time to review your estate plan and determine if anything has changed. Anytime you acquire/sell an asset, you may want to make changes to any specific gifts in your will - for example, you may have left a specific property at a specific address to someone and it needs to be updated to the new address, or maybe you left a piece of property as a specific gift (like a piano) but you sold it as part of the move and it needs to be removed. If you’ve moved to a different province (or country!), you will also be subject to local wills and estates laws in that market. While most Canadian provinces recognize wills made in other provinces, it’s always best practice to update your will to adhere to provincial legislation. If you’ve moved locations, you may also want to consider changing your executor to someone who is closer to you, or to select a new guardian for your children that will be a better fit.
If you create your will online with Willful, you can make updates to it anytime for free! It’s important to note that anytime you make an update, you have to print and have your will signed and witnessed correctly in order to make it legally-binding. At the time the new will is signed, the older will automatically becomes invalid, and you should destroy it. Make sure to inform your executor that you’ve created an updated version if you are storing it somewhere different.
What is a Power of Attorney for Property?
Appointing a Power of Attorney for Property gives someone the power to act on your behalf in affairs relating to your home and property if you’re still alive but are incapable of acting for yourself. Having a POA for property can help save your home in the event of an emergency. If you were incapacitated and couldn’t pay your bills or maintain your home, your Attorney could help ensure your property is still being taken care of - for example they could pay the mortgage or pay for maintenance and repairs. This way you aren’t at risk of your home falling into disrepair or being behind on your bills.
When appointing a Power of Attorney for Property, it’s important to choose someone you can trust and rely on. This person will make decisions about your property and sell it (if needed) if something were to happen to you. If you don’t appoint someone, a family member or friend will have to apply to the court to take on this role, which can take time, and may result in missed deadlines.