How to ensure your children can keep your home if you die – MoneySense

Living (inter vivos) trusts

A living trust, or inter vivos trust, which you set up during your lifetime, is usually used for tax reasons. People can use a trust to share income with lower-income family members, using a loan with a prescribed interest rate, or to multiply the lifetime capital gains exemption (LCGE) when planning the future sale of a business. In your case, neither applies.

If you are 65 or older, there is the option of an alter ego trust, which is usually used to avoid probate for large estates in provinces with high probate rates such as British Columbia, Ontario or Nova Scotia.

But I probably wouldn’t use a living trust so your kids don’t have to pay to keep your house after you die, Annette. Maybe a testamentary trust.

Testamentary trusts upon death

A testamentary trust takes effect upon your death. You can create a trust or trusts for different beneficiaries, and you can leave a percentage of your estate or a specific asset in trust.

To achieve your goal, you can leave your home to your children in trust, along with a certain dollar amount or a certain percentage of your estate, so that there is money for ongoing maintenance and upkeep.

Tax on your home upon death

If the home is your principal residence, you generally do not have to pay taxes upon your death, Annette. This assumes that no other property has been claimed as your primary residence during the years you have owned it, and that you have not used a significant portion of your home for rental or business activities.

If your home is on a large plot of land, there may be tax implications resulting from the deemed disposition (sale) of your home upon death, as the entire value may not be tax-free using the principal residence exemption.

Cottage and farm planning

It is probably more common for people to leave a cottage or farm in trust with money to maintain the property. This can help keep a property in the family.

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It is more likely that taxes will have to be paid on death involving a cottage or farm. A cottage may be subject to capital gains tax if another property is claimed as the deceased taxpayer’s primary residence. Farms may or may not be taxable, as in some cases there is a capital gains exemption over the life of a farm of $1.25 million.

What do children normally do when you die?

If your children are minors or still live at home, it may be an advantage to manage your home for a while, for example until your youngest child is 25. This gives them the opportunity to find their way and launch without having to move.

If they are minors, they need a guardian to live with them. Maybe that’s part of your will planning, Annette.

But to play devil’s advocate, I have to challenge you with the idea of ​​your children wanting to keep your home. Sometimes parents think their children want to keep a particular asset, such as a house, cottage or farm, because they assume it has the same sentimental value to their children as it does to them.

They may love it, and they may miss it when it’s gone, but for all practical purposes, kids have to live their own lives too. If selling an inherited asset allows them to buy their own home or realize their own dreams, they may ultimately choose that path.

Depending on your goals and your family situation, a conversation with your children can help you identify this and save you the trouble of coming up with an unnecessary arrangement.

Keeping a home as a rental property

You may think they will keep the house as a rental property. They could choose to do this, but chances are your children will have an unused Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA), or debt that they can pay off with an inheritance.

While real estate prices have risen significantly in some cities over the past generation, the upside potential for the next generation may be more limited. Furthermore, not everyone wants to be a landlord, especially when it comes to siblings. It takes a lot more work than buying and holding boring stocks, exchange traded funds (ETFs), or mutual funds.