Can Creditors Take a House Left to an Heir in Ontario?

Inheriting a home can be good news and a worry at the same time, especially if the person who died owed money. The common question is whether creditors can reach the house or force a sale.

The answer depends on the kind of debt, whether the estate has enough other assets, and what the will says. This article sets out the general rules so you know what to ask.

Debts are paid before beneficiaries receive property

On death, property passes to the estate trustee, who holds it for the people legally entitled to it after the deceased's debts are paid. So an heir does not simply receive the house the day after death. The estate trustee is the only person with legal authority to manage or distribute the estate.

Unless the will says otherwise, debts and funeral and testamentary expenses are paid out of the residuary estate, shared rateably according to the value of each part. Whether a house is part of the residue or is left to you specifically changes how this works, so the wording of the will matters.

Mortgages and secured debts

If the deceased owned mortgaged property and did not show a contrary intention, that property is primarily liable for the mortgage debt as between the people claiming through the deceased. In plain terms, whoever inherits the house generally takes it subject to the mortgage.

A lender with a mortgage or lien keeps that security. In an insolvent estate, the equal-sharing rule does not affect any lien the deceased gave over their property during their lifetime. If the lender is not paid, the house may be at risk, so talk to the estate trustee and a lawyer early.

When the estate cannot pay all its debts

If the assets are not enough, the Crown's debts, the personal representative's debts and other creditors' debts are paid proportionately, with no debt ranking ahead of another. That can mean a house is sold by the estate trustee to raise money, depending on what else the estate holds.

The executor or administrator of a deceased insolvent person may make an assignment of the deceased's property for the general benefit of creditors, which may need the court's permission. In the bankruptcy of a deceased person, reasonable funeral and testamentary expenses are paid first, subject to the rights of secured creditors.

Other points that affect the house

• A spouse with no ownership interest who is living in the matrimonial home when the other spouse dies may stay rent-free, as against the estate, for 60 days after the death.
• If a spouse owned the matrimonial home as a joint tenant with someone other than their spouse, the joint tenancy is deemed severed immediately before death and the deceased's share goes to the estate.
• A personal representative who gives proper creditor notice is not liable to creditors whose claims they did not know about, but must still have regard to the claims they do know about.

Whether a creditor can force a sale of a particular house depends on the type of debt and the facts, and a lawyer can confirm this for your situation.

What to do next

• Ask the estate trustee for a list of the known debts, including any mortgage on the house.
• Do not sell, transfer or move into financial commitments on the house until you know whether the estate can pay its debts.
• Find out whether the will leaves the house to you specifically or as part of the residue.
• Keep paying insurance and basic upkeep through the estate trustee's direction.
• Get legal advice if the estate may be insolvent.

Frequently asked questions