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How to Protect Investment Properties in Case of Death


How to Protect Property Investment Properties in Case of Death

Property investment can be lucrative, providing financial stability and wealth accumulation for individuals and families. However, it is crucial to consider the long-term protection of your property investments, especially in the unfortunate event of your passing.


Planning ahead and taking proactive steps can ensure that your assets are safeguarded and seamlessly transferred to your beneficiaries, minimizing potential complications. In this blog, we will discuss essential measures to protect your investment properties in the case of your death.


What Happens To Your Properties When You Die?

A will determines what happens to your properties. If you do not have a will, the following is the standard in Ontario for the division of all assets:

  • If you have a surviving spouse but no children, the spouse gets your entire estate.

  • If you have a spouse and children, the spouse will get the first $200,000 and the remainder will be divided equally between the children and spouse.

  • If you don't have a spouse but have children, your estate is divided equally between your children. If any of your children have died, their children (your grandchildren) get their share.

  • If you don't have a spouse, children or grandchildren, your estate is divided equally between your parents. If only one is alive, they get your entire estate.

  • If you don't have surviving parents, your siblings will get your estate. If they're not surviving either, their children (your nieces and nephews) get their share.


The process of divvying up assets without a will can take months and often takes longer if you try to contest the standard. So, what happens to your properties in the meantime? Your tenants and properties are at risk in this situation, so we always recommend filing a will with a local legal representative and ensuring your loved ones know about it.


With a will, your beneficiaries will inherit your properties as you request. The only concern with this method is capital gains tax and how it can leave your loved ones with more debt than they can manage.


Capital Gains Tax

Capital gains tax is the tax you pay when a property (or asset) sells. "The capital gains inclusion rate is 50% in Canada, which means that you have to include 50% of your capital gains as income on your tax return." (Wowa.ca)


One thing overlooked when considering capital gains tax is that the property will be "stepped up" to the current market value. For example, when Joe inherits his parents' house - which they paid $100,000 for in 1988 - it is assessed for current market value and found to be worth $250,000. He will pay tax on $250,000.


How To Avoid Capital Gains Tax

To avoid capital gains tax, your beneficiary will have a few options:

  1. Hold on to the property until the property is worth more than the capital gains owed. In other words, Joe can hold on to the property until it's worth $500,000 and will only owe capital gains on the stepped-up value of $250,000.

  2. Make the property into the primary residence. "The passing of a primary residence through inheritance is considered a primary residence sale, and as such, there is no capital gain." (Buttonwood.ca)

  3. Do not accept the inheritance. Turning down the inheritance means it goes to the next person on your will, and the original beneficiary owes nothing.


What Should You Do To Protect Your Assets And Your Loved Ones?

The easiest way to avoid a messy situation or an expensive inheritance, consider the following advice:

  • Always have a will.

  • Gift your properties before you die. By putting the properties in the name of your loved one, they will be responsible for capital gains tax only based on the original cost of the property.

  • Think carefully before bequeathing a home to more than one beneficiary. It can be challenging for siblings to come to a mutual decision. That being said, we frequently work with investment partners that are not related, so with a well-outlined plan, it could be a viable option.


Don't let age slow down your property investing plans. Property investment is a fun and rewarding way to make an income that will support you through the later years. With Regalway Homes as your guide, we will set you up for success now, through your future, and even into the next generation. For more information, book a free consultation today!

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