In this week’s blog, I am sharing a story of two adult children in their 70’s who inherited their mother’s home in Toronto when she passed away ten years ago in 2014. On title, they are registered as joint tenants.

At the time, the siblings, a brother and a sister, were in good financial postitions so there was no immediate need to sell the property.  The brother moved into the home and made it his principal residence.  The sister lived with her husband and daughter elsewhere.  The two families got along well so there was no desire to sell the property or acquire the other party’s interest.

Fast forward ten years, in a consultation with our Will and Estate Consultant, the brother learned that if he were deceased, the home would fall out of his will, bypass probate, and go to his sister. It is his principal residence and tax exempt, yet his death wouldn’t trigger capital gains tax for his sister because she has not disposed of her interest.  She would become the sole owner of the property.  However, this is her second property so she should consider carefully whether she wants to sell it to avoid paying more tax if the home appreciates further in the future.

What happens if the sister dies first?  If the sister is deceased, she is deemed to have disposed of the property at the fair market value in the year of her death.  Her estate would pay capital gains tax on the positive difference between the fair market value and the cost when the siblings inherited the home ten years prior.  Real estate prices in Toronto have risen significantly over the past decade.  If the gain is less than $250,000 it would be subject to a 50% inclusion rate.  If it is greater than $250,000, which is the likely scenario, then it would be taxed at the higher 66.67% inclusion rate.

It would have been beneficial if the siblings had consulted with a lawyer and an accountant when they received a large inheritance like a home ten years ago so they could have been educated on the potential legal and tax implications.