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Paying More Land Transfer Tax Than You Should Be? What Estate Beneficiaries Should Know When Inheriting Real Estate

Overview

Are you inheriting a piece of property or the proceeds from the sale of a property? You may be paying more land transfer tax then you should be. In this article, Toronto real estate lawyer, Antonio DiMinno, of DiMinno Rizzi Lawyers, provides a basic overview of what estate trustees should know about land transfer tax when distributing a deceased’s estate.

The Basics: What is an Estate Trustee and Beneficiary? What is Land Transfer Tax?

An estate trustee is a person who is responsible for dealing with an estate. They are basically in charge of making sure that the deceased’s wishes are fulfilled and their assets distributed to the proper parties.

The estate trustee is named in a person’s will or is appointed by the court where the deceased did not have a will. There may be one or more estate trustees named in a will. Usually, the estate trustees are a deceased’s closest family member(s). Often, an estate trustee may also be a beneficiary of the estate.

A beneficiary is a person who has been designated to receive some or all of the estate. Beneficiaries are either determined in a will or by court order where there is no will.

Finally, land transfer tax is an Ontario tax that applies to the transfer of real estate in Ontario. Generally, when a person buys or acquires real estate in Ontario, they must pay land transfer tax. Where the property is acquired in Toronto, there is additional land transfer tax. This tool can assist with determining the land transfer tax of your purchase:

https://www.landtransfertaxcalculator.ca/

Where Land Transfer Tax Does Not Apply

One exception to the requirement to pay land transfer tax is where real property is transferred from an estate to one beneficiary.

For example, this commonly occurs when there is only one beneficiary to the entire estate. In this case, the beneficiary obtains title to the deceased’s property without having to pay land transfer tax. Another example is where an estate has two or more beneficiaries, but the will specifically states that certain real property is to be inherited by a particular beneficiary. In this case, the property will pass to that beneficiary without attracting any land transfer tax.  In both of these examples, the person who receives the property is the only one entitled to it under the will.

Obtaining a Partial Exception Where Land Transfer Tax Applies

Oftentimes, there will be more than one beneficiary entitled to real property.  Where the beneficiaries decide that the real property will be transferred to only one of them, land transfer tax will apply to the transfer to the beneficiary. However, the parties can use a partial exception that will save them thousands of dollars in land transfer tax.

Example

A parent’s will states that her three children, John, Luke, and Mary, will receive her assets in equal shares. At the time of the parent’s death, her personal residence in Toronto is worth 1.2 million. Her other assets consist of stocks and GICs valued at 2 million total.

The beneficiaries agree to transfer the whole personal residence to Mary, instead of selling the property to a third party and giving each beneficiary their third of the residence in cash. So, Mary will receive the entire property in lieu of the other assets in the estate, meaning she will receive an extra 2/3rd (800,000/1.2mil)  in value from the house instead of just her 1/3rd ($400,000). The extra 2/3rd she gets will be deducted from the rest of the assets to compensate John and Luke.

So, Mary has surrendered $800,000 worth of property from the other assets of the estate.  As a result, Mary’s land transfer tax will be calculated based on the $800,000 she surrendered, and NOT on the actual value of the property (1.2 million). This means that the land transfer tax she owes will be $24,950, not $40,950.00. She has saved $16,000 in land transfer taxes!

 

How an Ontario Real Estate Lawyer Can Help

When selling real estate in an estate, a good first step is to speak to a real estate lawyer fluent in estate sales.

Many real estate lawyers do not understand estates well enough, so extreme care must be taken to ensure that you are not paying more taxes than you should be.

Working with a good real estate lawyer will mean that you pay as little in land transfer taxes as possible, get proper title to the property, and don’t have any issues down the road. Call us anytime for a free strategy session!

 

Antonio DiMinno

647-205-9128

antonio@drlawyers.ca

Contact us today for a free strategy session!

 

Disclaimer: All number figures are approximate only and may be subject to change. Like all material on this website, this is not financial, legal, or tax advice. Contact a professional for your specific situation. 

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