Buying Out Siblings' Shares of an Inherited House in Ontario

After a parent dies, one child often wants to keep the family home while the others would rather have their share in cash. A buyout can suit everyone, but only if the family agrees on a value, the buyer can pay, and the transfer is properly documented.

This article covers the main steps: who actually owns the house, how to value it, how a buyer can pay, what to put in writing and what happens if talks break down.

Who owns the house at this stage?

If the house is still in the deceased's name, the estate trustee deals with it. Their duties are to wind up the deceased's affairs, pay taxes and debts, collect assets and distribute the residue to those entitled.

Probate is normally required if the deceased owned real property that does not pass to another person by right of survivorship. If there is no will, the spouse or common-law partner usually has first right to apply to administer the estate. If there is none, a close adult relative can apply, and the court may appoint the relative it considers most appropriate.

Check how title was held. When a tenant in common dies, their share becomes part of their estate, and when a joint tenant dies, the surviving co-owners inherit the share. A buyout of siblings only makes sense once you know who is entitled to what.

Putting a value on the house

For tax purposes, the deemed proceeds on the final return are the fair market value on the date of death. Estate Administration Tax uses its own method, which counts Ontario real estate at appraised date-of-death value, minus encumbrances such as mortgages or liens.

A buyout price is a matter of agreement, and it is often set by a current appraisal. A date-of-death appraisal may be out of date if the market has moved, so many families get both.

• Use a qualified, independent appraiser that all siblings accept.
• Agree on how any mortgage or lien will be treated, since the share you are buying is of the equity.
• Decide whether to adjust for selling costs that would be avoided, and for repairs the buyer will take on.
• Account for amounts already paid by one sibling for taxes, insurance or upkeep.
• Write down the method before you see the number, so nobody feels it was chosen to favour one person.

Paying for the buyout

The buyer must usually find enough to pay the other siblings. Common routes include a new mortgage on the house, savings, a loan from family, or taking less from the estate. Whether a buyer's own share of the estate can count toward the price depends on the facts, so it is worth confirming with a lawyer. A lender will have its own requirements, so speak to a mortgage professional early.

If real property must be sold, a certificate should be obtained before anyone signs an Agreement of Purchase and Sale. If a sibling is buying, what authority is needed before signing anything depends on the facts, so it is worth confirming with a lawyer.

Estate Administration Tax is paid by the estate. For certificates applied for on or after January 1, 2020, it is $0 per $1,000 on the first $50,000 and $15 per $1,000 on the rest. Budget for this and for the final-return tax before distributing.

Tax and documents

On death, the deceased is treated as having sold all their property just before death, and any gain is reported on Schedule 3 and line 12700 of the final return. If the house qualified as a principal residence, it must still be designated on the final return using Schedule 3 and Form T1255, and the designation applies only until the date of death.

The spouse rollover does not help siblings. It applies to a transfer to a surviving spouse or common-law partner. How tax applies to a later sale by the buyer depends on their situation. An accountant can confirm this for your case.

If siblings cannot agree, and next steps

Co-owners, whether joint tenants or tenants in common, can be compelled to partition or sell. Where land passed by will or intestacy, no proceeding may start until one year after the death of the person in whom the land was vested. Joint tenants have a prima facie right to force a sale, and the party resisting must show why the property should not be sold.

In one case, the court let the owner who wanted to keep the property buy out the other co-owner first, with a sale to proceed if she was unable or unwilling to buy. That shows why having your financing lined up matters.

• Confirm who the estate trustee is and who is entitled to the house.
• Get an independent appraisal and agree on the method.
• Confirm the mortgage balance and any liens.
• Speak to a lender before making an offer to your siblings.
• Ask an accountant about the final-return tax and your future cost base.
• Have a lawyer prepare the buyout agreement, releases and transfer.

Frequently asked questions