- As between the people inheriting, the land itself is primarily liable for the mortgage, so a beneficiary who receives the home generally takes it subject to the mortgage unless the will or another document shows a contrary intention.
- A general direction in a will to pay debts is not enough by itself to move the mortgage off the home; the intention must be expressed or follow by necessary implication.
- For Estate Administration Tax the mortgage is deducted from the home's value, but other debts are not.
A parent, spouse or relative has died and left you their house. The house still has a mortgage on it. You may wonder whether the mortgage disappears, whether the rest of the estate pays it, or whether it is now yours to deal with.
In Ontario the answer usually depends on the wording of the will and on a few default rules in the Succession Law Reform Act. This article explains those rules in plain language so you know what to ask when you meet the estate trustee or a lawyer.
The basic rule: the home carries its mortgage
When a person dies owning mortgaged land, the land itself is primarily liable for the mortgage debt as between the people claiming through the deceased. In practice, the beneficiary who receives the home takes it subject to the mortgage, unless the will or another document shows a contrary intention.
This is a rule about who bears the cost among the people inheriting. It does not by itself decide what your lender will do or require, and lender practice varies. It is best to speak with the lender directly.
When the will talks about paying debts
Many wills say that the estate trustee should pay the deceased's "just debts". That kind of general direction is not enough by itself to shift the mortgage off the home. The person who made the will must signify that intention expressly or by necessary implication.
- A will that clearly says the mortgage on a named property is to be paid from the rest of the estate points toward the estate paying.
- A will with only a general instruction to pay debts usually does not, on its own, move the mortgage.
- A will that is unclear can lead to disagreement among beneficiaries, so the exact wording matters.
How this fits with other estate debts
The residuary estate, meaning real and personal property left after specific gifts, pays the deceased's debts rateably according to value. This is subject to a contrary intention in the will and to section 32 of the Succession Law Reform Act. So the mortgage rule for the home sits alongside the general rule for other debts such as credit cards or loans.
Where a will charges land with debts or legacies and leaves it to someone without saying how the money is to be raised, the person who receives the land may raise the money by selling or mortgaging that land [Trustee Act s. 44(1)].
The estate trustee's role and the title to the home
A deceased person's property, including the home and its contents, vests in the personal representative, who holds it as trustee. Only an estate trustee has legal authority to manage or distribute an estate, which includes selling the home or clearing it out.
When the home was in the deceased's name alone, the estate trustee registers a transmission application. The statements say whether the trustee was appointed with or without a will, and whether the property is subject to the deceased's debts or the debts have been paid in full.
If the home was owned jointly and passes to the surviving joint owner by survivorship, a survivorship application puts title in the survivor's name. A spouse who co-owned the matrimonial home with a third person, not with the other spouse, is a special case, because the joint tenancy is deemed severed immediately before death and that share goes to the estate.
Estate Administration Tax and the mortgage
For Estate Administration Tax, Ontario real estate is valued less encumbrances on it, such as a mortgage, collateral mortgage or lien. Other debts such as lines of credit, credit cards and loans cannot be deducted, and neither can funeral expenses or lawyer's fees.
Jointly owned assets that pass automatically to the surviving owner or owners are left out of the estate's value for this tax.
| Item | Counted for Estate Administration Tax? |
|---|---|
| Mortgage on an Ontario home | Deducted from the home's value |
| Credit cards, lines of credit, loans | Not deducted |
| Funeral expenses and lawyer's fees | Not deducted |
| Home passing by survivorship to a joint owner | Left out of the estate's value |
What to do next
- Get a copy of the will and read the wording about the house and about debts closely.
- Find out who the estate trustee is, since only they can manage or sell the home.
- Contact the lender directly to ask how it deals with a mortgage after a death, as practice varies.
- Check whether the home was owned jointly or in the deceased's name alone.
- Keep the home insured and tell the insurer in writing about the death, and read your own policy wording.
- Speak with a lawyer if the will is unclear or beneficiaries disagree about who bears the mortgage.
Frequently asked questions
Do I have to pay the mortgage if I inherit the house?
As between the people inheriting, the land is primarily liable for the mortgage, so you generally take the home subject to it unless the will or another document shows a contrary intention. How the lender treats the loan is a separate question to raise with the lender.
Does a clause saying debts are to be paid from the estate clear the mortgage?
Not by itself. A general direction to pay debts is not enough; the intention to shift the mortgage must be expressed or follow by necessary implication.
Can I sell the house to deal with debts charged on it?
If a will charges land with debts or legacies and leaves it to you without saying how they are to be raised, you may raise the money by selling or mortgaging that land. Only the estate trustee has authority to sell the home while the estate is being administered.
Is the mortgage taken off the value when estate tax is calculated?
Yes, a mortgage on Ontario real estate is deducted, but other debts like credit cards and lines of credit are not. A jointly owned home passing automatically to the survivor is left out of the estate's value.
Sources
- Ontario Land Registration Bulletin 2000-6: Estate Documents — ontario.ca
- Family Law Act, R.S.O. 1990, c. F.3, s. 26(1) (e-Laws) — Ontario e-Laws
- Estates Administration Act, R.S.O. 1990, c. E.22, s. 2(1) (e-Laws) — Ontario e-Laws
- Succession Law Reform Act, R.S.O. 1990, c. S.26, s. 32(1) (e-Laws) — Ontario e-Laws
- Trustee Act, R.S.O. 1990, c. T.23, s. 44(1) (e-Laws) — Ontario e-Laws
- Ontario.ca – Estate Administration Tax — ontario.ca
- Ontario.ca – Probate of a small estate — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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