Life Interest in a House Under a Will: Rights and Duties in Ontario

Some wills leave a person the right to live in the family home for life, with the house going to someone else, often the children, afterwards. This is a life interest. It can protect a surviving partner, but it also creates questions that families often discover only after the death.

Who pays the property taxes and repairs? Can the house be sold if the person living there moves to a care home? This article explains what is generally in play and where the answer depends on the will itself. Because those details turn on specific wording, a lawyer should review the document.

What a life interest generally means

A life interest gives one person the right to use the property during their lifetime. The people who receive the property afterwards, sometimes called remainder beneficiaries, get it when that period ends. The two groups have connected but different interests in the same house.

This is different from joint ownership. When a joint tenant dies, the surviving co-owners inherit the share, and when a tenant in common dies, the share becomes part of the estate. A life interest is a different arrangement, so how the will treats it is worth confirming with a lawyer.

Who pays for taxes, insurance and repairs

This is the question that causes the most conflict, and there is no single answer that fits every will. Some wills address these costs directly. Others say nothing, or set aside money from the estate. Which approach applies depends on the wording and on the law that fills any gaps, so a lawyer should confirm it for your situation.

Whatever the split, do not leave the question open. Municipal tax arrears can lead to a tax sale. The treasurer may register a tax arrears certificate, anyone can cancel the sale by paying the cancellation price within one year after registration, and if it is unpaid after one year with no extension agreement, the land must be offered for sale by public auction or tender. A municipality and the owner can make an extension agreement that stops the sale at the end of that period.

• Ask the estate trustee, in writing, who is expected to pay taxes, insurance and repairs.
• Keep receipts for every payment, because they may matter later if the family disagrees.
• Make sure the home stays insured, whoever is paying.
• Do not assume that paying for something gives you a right to be repaid or the reverse; confirm it first.

The estate administration comes first

Before a life interest can work smoothly, the estate has to be administered. The estate trustee's duties are to wind up the deceased's affairs, pay taxes and debts, collect assets and distribute the residue to those entitled. A trustee who is also a remainder beneficiary can be in a conflict, which is another reason to get advice.

Probate is normally required if the deceased owned real property that does not pass to another person by right of survivorship. Where a certificate is needed, the estate pays Estate Administration Tax. 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, with Ontario real estate counted at appraised date-of-death value minus encumbrances such as mortgages or liens. Estates valued at up to $150,000 can use a Small Estate Certificate, while larger estates use a Certificate of Appointment of Estate Trustee.

Selling the house

Whether a house subject to a life interest can be sold depends on the will and the circumstances, so it is worth confirming with a lawyer. Whether the will authorizes a sale, and on what terms, is something to check with a lawyer before anyone acts. If the will is silent, court guidance may be needed.

If real property must be sold, a certificate should be obtained before anyone signs an Agreement of Purchase and Sale. Co-owners can be compelled to partition or sell under the Partition Act. Whether that route fits a life interest arrangement is a legal question to put to a lawyer rather than assume.

Tax points to raise with an accountant

On death, the deceased is treated as having sold all their property just before death, and any gain or loss is reported on Schedule 3 and line 12700 of the final return. The deemed proceeds are the fair market value on the date of death. If the home qualified as a principal residence, it must still be designated on the final return using Schedule 3 and Form T1255, and the deceased's designation applies only until the date of death.

A transfer on death to a surviving spouse or common-law partner who is resident in Canada may produce no capital gain or loss on the final return, provided the property is locked-in for the spouse or partner no later than 36 months after death, and the legal representative can elect out property by property. Whether a life interest qualifies is a technical question for an accountant. If the home is held in a trust, a personal trust can claim the principal residence exemption only if it meets the trust rules, including specifying each year the beneficiaries who ordinarily inhabited the home.

What to do next

• Get a full copy of the will and any codicils, and read the exact wording about the house.
• Find out whether the estate has been probated and who the estate trustee is.
• Ask in writing who is responsible for taxes, insurance and repairs.
• Check that property taxes are being paid and that insurance is in force.
• Speak to an accountant about the final return and the house.
• Have an Ontario lawyer review the will before any decision to sell, move out or make major repairs.

Frequently asked questions