Buying a new home is a big decision, and it’s one that has become even more stressful during COVID. From attending open houses to viewing homes to signing paperwork, the process has changed – and in many cases moved online – due to the pandemic, but more people than ever are looking for new homes. Whether you’re moving out of the city, moving provinces, or buying your first home, it’s crucial to protect what will likely be one of your biggest assets through a solid estate plan.
Here are the do’s and don’ts of estate planning for homebuyers:
Do: Create or update your will – one of the main catalysts for creating a will is acquiring a large asset, so buying a home is the perfect time to check “get a will” off your list. If you die without a will, your assets – including your home – are distributed based on a provincial formula, which means your property may not pass to the people you would want it to. A recent study commissioned by Willful showed that 49% of Canadian homeowners don’t have an up-to-date will. It’s also important to keep your will up to date. Review your will annually, and to make changes if you move provinces, or if you want to add a property or any belongings as specific gifts in your will.
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Do: Ensure you understand how the ownership of your home affects what happens when you pass away. In fact,1 in 4 Canadians don’t know what happens to their home after they die. If you own your home alone, it will be covered in your will and you can pass it to whomever you choose. If you own your home jointly, there are two very different ways to structure ownership and they vastly affect how your home will be dealt with when you pass away. If you own it ‘jointly with rights of survivorship’, your home will automatically pass to the joint owner when you’re gone, and it will not flow through your will. If you own your home ‘jointly with tenants in common’, this means you and your co-owner essentially own your specific portion of the home and you can leave it as a gift in your will. If you passed away without a will, your portion of the property would flow through your estate, which means it would be distributed based on the laws in your province. It’s important to understand the various types of ownership, and potentially to update the way in which you own your home, so it accurately reflects how you would want the property to be passed on.
Do: Understand the tax implications of owning a home when you pass away. There are two certainties in life – death and taxes – and two types of taxes must be paid after a person dies: final income taxes and probate fees, which are almost always required if you own a home. When you pass away, the CRA treats any properties as if they were sold the day prior to your death – which has huge capital gains implications for your beneficiaries. This is why ownership is so important – joint ownership can mean passing a property on without paying any capital gains, whereas if you pass a property on in your will, it could mean a huge tax bill for your estate. It’s always wise to speak with a financial advisor or tax specialist about how to minimize taxes incurred by your estate.
Don’t: Assume foreign properties will be handled the same as Canadian properties when it comes to wills. If you’re a snowbird who owns property down south, or if you have any properties around the world, it’s not as simple as just making a will in Canada. While a Canadian will does cover foreign assets, it’s often better from a tax perspective to create multiple wills – one in Canada to cover your assets here, and one where you own property to cover those assets under local laws. Again, it’s wise to speak to a financial advisor or tax specialist about how to minimize your taxes.
Your will is as unique as you and should always reflect your current life situation. Willful helps make updating your will easy by offering free and unlimited updates for life. Create your will in 20 minutes or less with Willful (starting at $99).
Don’t: Assume your mortgage disappears when you pass away. The good news? You can’t pass on your debt to your beneficiaries. The bad news? Your mortgage will be paid by your estate – so the bill still gets paid. Note that if your mortgage has other co-signers, the debt will automatically transfer to them when you’re gone.
Don’t: Forget about power of attorney documents. A will covers what happens when you pass away. Power of attorney documents give someone the power to act for you when you’re still alive, but unable to make decisions due to illness or injury. Appointing an attorney gives someone the power to deal with your property if you’re incapacitated. This includes things like keeping mortgage payments up to date, selling a home or providing access for maintenance. It’s important to not only protect your largest asset after you’re gone, but to ensure it will be cared for in the event of an emergency.
There you have it! When buying a home, your first thought probably isn’t emergency planning. But after you’ve unpacked your boxes and finished off the champagne, it’s important to take the time to create or update your will or power of attorney documents. Platforms like Willful make it easy to get it done in less than 20 minutes so you have peace of mind in addition to a new place to call home.
Erin Bury is the co-founder & CEO at Willful, a platform that makes it affordable, easy, and convenient to create emergency planning documents in less than 20 minutes. She’s a homeowner and until launching Willful, she had no idea about any of these do’s & don’ts so she’s trying to share her learnings with other homeowners across Canada.
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