Executor Handling a Deceased Landlord's Rental Property in Ontario

When the person who died owned a rental property, the estate trustee inherits more than a building. There are tenants who still pay rent and expect repairs, an insurance policy that may have conditions, and tax reporting that splits the year in two.

This article walks through the main questions in plain language. It cannot replace advice on your particular lease, policy or will, and some points depend on the facts. Those are flagged so you know when to ask a lawyer or accountant.

Your role as estate trustee

An estate trustee carries out the terms of the will and administers the estate under the law. That means winding up the deceased's affairs, collecting assets, paying taxes, bills and other debts, and distributing the residue to the people entitled to it. A rental property is an asset to be looked after until it is sold or transferred to a beneficiary.

A person named as executor in a will is not required to act. If you are thinking about taking on the role, it is worth understanding what a rental property involves first, because managing tenants can be an ongoing job.

Real property that does not pass by right of survivorship generally needs probate. Until you have the authority you need, be careful about signing new leases, making large repairs or selling. Whether you can act before a certificate is issued depends on the facts, so ask a lawyer.

Who collects the rent and what tenants can expect

Rent owed to the deceased landlord is part of what the estate is collecting. In practice, tenants need a clear, written message telling them who to pay and how, and a contact for repairs and emergencies. Keep the existing payment method unless you have a good reason to change it, and keep a record of every payment.

Tenants will usually have questions about what the landlord's death means for their rights. The detail of how those rights apply during an administration depends on the lease and the circumstances, so a lawyer can confirm your position before you give notices, raise rent or ask anyone to leave.

• Write to each tenant with the date of death, who is handling the property, and where to send rent.
• Do not accept cash without giving a receipt.
• Keep rent in an estate account, separate from your own money.
• Keep a log of repair requests and what was done.
• Gather the leases, deposit records and any tenant correspondence.

Insurance on a rental property

Call the insurance company or broker early, tell them about the death, and ask in writing how the policy treats the change. Ask whether the policy continues while the estate is being administered, whether the estate or you need to be named, and whether any conditions affect coverage while tenants are in place or if the unit later becomes empty.

Policies differ, and the specific conditions in yours are what matter. Do not assume coverage continues just because premiums are being paid. Keep the insurer's answers in writing and, if anything is unclear, have a lawyer or broker read the policy.

Income tax: the final return and the estate

Rental income from January 1 to the date of death goes on the deceased's final return, and income is calculated on Form T776. Rental income the estate earns after death is reported on line 8 of a T3 return.

The final T1 is generally due April 30 of the following year for a death between January 1 and October 31, or six months after death for a death between November 1 and December 31. If the deceased was self-employed, different dates apply, but payment is still due on the original date.

Capital property is deemed disposed of just before death at fair market value, reported on Schedule 3 of the final return. For depreciable rental property, that can create CCA recapture or a terminal loss. Transfers to a spouse or common-law partner or a spousal trust generally occur at cost unless the fair market value choice is made on the final return. A later sale is taxed on the sale price less the fair market value reported on the final return.

Trustees apply for a trust account number online or with Form T3APP, and the number must be on every T3 return. A graduated rate estate T3 return is due 90 days after the trust's tax year-end. The legal representative can choose the first year-end at any date up to one year after death.

What to do next

Take the steps in order: confirm your authority, secure the paperwork, tell tenants and the insurer, and bring in an accountant for the tax reporting. Estate Administration Tax is based on the value of the estate at the date of death, so get a valuation of the property early.

• Confirm whether you need a court certificate before you act on the property.
• Collect leases, rent rolls, deposit records and recent statements.
• Notify tenants in writing about who to pay.
• Phone the insurer and ask about coverage in writing.
• Open an estate account for rent and expenses.
• Ask an accountant to prepare the final return and T3 returns.
• Speak with a lawyer before ending a tenancy or selling.

Frequently asked questions