Renting Out a Deceased Person's House While the Estate Is Open

Estates can take a long time to settle. If the deceased's house is sitting empty, renting it out can look like an obvious way to cover costs and keep the property occupied. But a rental is a legal and financial step, not just a practical one.

This article walks through the main questions an estate trustee should settle before putting a tenant in the home. It does not replace advice on your situation, and several points below depend on facts, so they are flagged as worth confirming with a lawyer, insurer or accountant.

Do you have the authority to rent the house?

In Ontario, an estate trustee is the only person with legal authority to manage or distribute an estate. A relative who is not the estate trustee, or an estate trustee whose appointment has not yet been confirmed, should not assume they can sign a lease on the estate's behalf. Land transfers by an estate trustee also generally require proof of appointment, such as a certificate of appointment, in an estate registration.

Even for an appointed estate trustee, the will may say something about the home, and a beneficiary may already be living there or have been promised it. Whether the estate trustee has authority to rent, and for how long, depends on the will and the circumstances, so it is sensible to have a lawyer confirm before signing a lease.

Check the mortgage and debts first

An estate trustee winds up the deceased's affairs, including paying taxes, bills and debts, collecting assets and distributing the rest. One of the fundamental duties is to ascertain and pay the estate's debts and liabilities. If the estate may need to sell the house to meet those obligations, a long lease can complicate that plan.

Look at any loan secured against the house. A reverse mortgage balance becomes due when the borrower sells, moves out, defaults or dies, and the estate usually has limited time to repay, with each lender setting its own timing. A lender may also have rules about renting the property, so read the mortgage terms and ask the lender before a tenant moves in.

• Ask each lender what it requires after a death and whether renting is permitted
• Find out whether a reverse mortgage is involved, because its timing is set by the lender
• Estimate whether the estate has enough cash to pay debts without selling the house
• Check the will for any gift of the house or direction to sell

Insurance and tenant issues

How your home insurance policy treats an empty or rented home depends on the policy, so it is worth checking with the insurer. This guide cannot say what your policy requires, so call the insurer, explain that the owner has died and that you intend to rent, and get the answer in writing. A policy that no longer fits the use of the home is a risk worth removing before a tenant arrives.

Tenancy law also needs attention. The Landlord and Tenant Board's guidance describes the rule under the Residential Tenancies Act, 2006 that if a tenant dies and no other tenant lives in the unit, the tenancy is deemed terminated 30 days after death. That matters if a tenant of the estate's property dies while the estate is open. The tenancy rules have been the subject of recent amendments, so confirm the current rules with a lawyer before relying on them.

Tax and the eventual sale

The deceased is treated as having sold each capital property immediately before death for its fair market value. The principal residence designation applies only until the date of death, and the legal representative must still designate it on the final return using Schedule 3 and Form T1255, even if the whole gain is exempt.

If the estate or trust sells the property after death, the gain goes on line 1 of the T3 return and is generally the sale price minus the fair market value reported on the final return, plus disposition costs. A T3 return is due no later than 90 days after the trust's tax year-end, and any balance owing is due then too. How rental income during the administration is taxed, and how renting affects the later sale, are questions for an accountant.

What to do next

• Confirm you are the appointed estate trustee and have the paperwork to show it
• Read the will for directions about the house and any beneficiary who expects to live there
• Ask every lender what it requires and whether renting is allowed
• Tell the home insurer your plan and get the coverage confirmed in writing
• Speak with an accountant about rental income and the later sale
• Have a lawyer review the lease and your authority before anyone signs

Frequently asked questions