Farm Succession / Inheritance Question

[chado613]

Will do !
I will talk to some experts, but I think the consensuses would be to get everything transferred over into our name sooner than later(before the will needs to be activated). The big advantage is that all 3 of us(Myself, My wife and Mother inlaw) currently live in the house. So since it is our primary residence and we do not plan to sell, Those to factors should avoid capital gains tax.

 

[sixdogs]

Will do !
I will talk to some experts, but I think the consensuses would be to get everything transferred over into our name sooner than later(before the will needs to be activated). The big advantage is that all 3 of us(Myself, My wife and Mother inlaw) currently live in the house. So since it is our primary residence and we do not plan to sell, Those to factors should avoid capital gains tax.

Please talk with attorney first. I don't know tax law in Canada but there might be tax implications for a simple gift or ways for heirs to later contest. Many countries do not arbitrarily allow for the transfer of assets without a tax. Better to know now rather than later. There is a lot of wrong advice on the internet and only an attorney and accountant someone who does this for a living knows the scoop.

 

[quicksandfarmer]

Please talk with attorney first. I don't know tax law in Canada but there might be tax implications for a simple gift or ways for heirs to later contest. Many countries do not arbitrarily allow for the transfer of assets without a tax. Better to know now rather than later. There is a lot of wrong advice on the internet and only an attorney and accountant someone who does this for a living knows the scoop.

I'll repeat the advice: talk to a lawyer. The thing you have to understand about tax/estate/real estate law is that it is arbitrary, specialized and precise. It's not something you can figure out from general principles, and small differences in what you do can make a big difference down the road. You have to know exactly what the law in your jurisdiction says -- and it's different in every jurisdiction. It's specialized enough, and changes constantly enough, that a lawyer whose specialty is something else won't be up on all the details -- you need someone who does this as their main business. It shouldn't be that expensive -- a few hours for a consultation and to draft some paperwork. A few hundred dollars today could save hundreds of thousands down the road.

 

[MinnesotaEric]

Hello All,

My wife and I currently live with my mother in law in our farm house. My mother in laws name is on the mortgage, deed , etc. My question is does anyone know if the house/farm is left to my wife and I in the will, what taxes, fees etc. will have to be paid.

I live in Ontario Canada and it is our primary residence.

Thanks

I'm a licensed real estate broker in MN, but obviously not in Canada so you'll need to pull along side a real estate attorney for proper legal advice.

In the USA I'd suggest a Quit Claim into you and your wife's names or a create a life estate naming you and your wife as the remainderman. A life estate is usually created to protect a person's right to live on property and, on that person's death, have it pass to another.

https://en.wikipedia.org/wiki/Life_estate

 

[teejk]

I'm a licensed real estate broker in MN, but obviously not in Canada so you'll need to pull along side a real estate attorney for proper legal advice.

In the USA I'd suggest a Quit Claim into you and your wife's names or a create a life estate naming you and your wife as the remainderman. A life estate is usually created to protect a person's right to live on property and, on that person's death, have it pass to another.

https://en.wikipedia.org/wiki/Life_estate

You don't have the "transfer on death deed" option in MN? I chose that for my MIL that was intent on transferring her house to my wife...seemed to be a "win-win" if the property value will increase (bypasses probate, no appraisal at date of an earlier transfer as would be required for an outright gift and basis in the property to the recipient is the value at date of death so appreciation is only taxed to the recipient for increases after that date). As for the OP I have no desire to learn Canadian taxation rules (ours are complicated enough).

 

[California]

Wow, lots of comments that could lead you into deep trouble. You need a proper consultation with an attorney specializing in transfer of farm estates.

Rules here that may/may not apply there: If you should be forced to sell in your lifetimes then the cost basis you figure profit from and then pay taxes on, starts from MIL's purchase long ago. But if you inherit via will (or Trust, here) then upon MIL's death, your cost basis basis jumps up to value at that date. This difference in taxes you owe could be hundreds of thousands of dollars. (My experience was prior to the increase of estate tax exemption recently).

And an issue unique to California: because of inheritance my property taxes are based on the Prop 13 rule: tax 'appraised value' is 1973 value + 3% per year thereafter. My annual property tax bill is only a third, maybe a quarter, of what more recent neighbors pay on comparable property, where appraised value started from market value when they bought the property.

So deeding it to you now in any form while she is living could be very costly later if you were forced to sell due to some unforseen disaster in the future.

I have no idea if this applies to you, I intend only to caution you that you need professional advice. Internet opinions are no help beyond suggesting things to watch out for.

 

[teejk]

Wow, lots of comments that could lead you into deep trouble. You need a proper consultation with an attorney specializing in transfer of farm estates.

Rules here that may/may not apply there: If you should be forced to sell in your lifetimes then the cost basis you figure profit from and then pay taxes on, starts from MIL's purchase long ago. But if you inherit via will (or Trust, here) then upon MIL's death, your cost basis basis jumps up to value at that date. This difference in taxes you owe could be hundreds of thousands of dollars. (My experience was prior to the increase of estate tax exemption recently).

And an issue unique to California: because of inheritance my property taxes are based on the Prop 13 rule: tax 'appraised value' is 1973 value + 3% per year thereafter. My annual property tax bill is only a third, maybe a quarter, of what more recent neighbors pay on comparable property, where appraised value started from market value when they bought the property.

So deeding it to you now in any form while she is living could be very costly later if you were forced to sell due to some unforseen disaster in the future.

I have no idea if this applies to you, I intend only to caution you that you need professional advice. Internet opinions are no help beyond suggesting things to watch out for.

Again the OP is talking Canada. But to add to my earlier comments about "transfer on death" deeds, I ran across a web site from a guy in California arguing that the state should adopt that...dunno if he succeeded but he laid out the case very plainly. Wisconsin adopted it years ago but it seems to be a closely guarded secret...no money for the consultants I guess. It's pretty simple...execute and file the TOD deed (pay the recording fees as usual). Can be revoked at any time and essentially it is a "legal nothing" until death of the owner. At death the value becomes the tax basis for the recipient. Of course it needs to be incorporated into one's overall estate tax plan but with the higher exemption now I think it makes a lot of sense.

 

[erda]

Will do !
I will talk to some experts, but I think the consensuses would be to get everything transferred over into our name sooner than later(before the will needs to be activated). The big advantage is that all 3 of us(Myself, My wife and Mother inlaw) currently live in the house. So since it is our primary residence and we do not plan to sell, Those to factors should avoid capital gains tax.

As I mentioned earlier, this plan will likely incur capital gains with CRA. On a farm, only a very small amount of the land, if I recall, no more than 5 acres, is attached to the house, the rest is subject to "market value". How much land are you talking about, and what is the per acre value? That will determine the potential tax liability.

Been there and dealt with it in Alberta!

 

[jaotguy]

very simple solution ...
your MIL just puts your wife's name on the mortgage ( or registers her as a co-owner, if the farm is free and clear ) ... see a lawyer to get it done all legal and proper ... when the MIL passes , the property transfers to the wife automatically ... ( same as if she was the MIL's spouse ) ... just the paperwork fees ...

rest of the will excludes any mention of the farm ....

BTW , no one mentioned in the will can sign as a "witness" the will ....

get a lawyer to draw up the will and keep a copy ON FILE with the province . self written wills are not worth the paper, if any one contests them ...

 

[arkydog]

yah, consult a blood sucking lawyer. they need to make money off of you even if they guess at the law. sorry about the sour grapes. when you search for a lawyer, i would look for a fairly young one that is eager to learn and do things for you. the older ones think they know it all and have money to rely on. the younger ones don't have the experience and will research for you to learn. also the older ones don't care if they make mistakes because they have money to support themselves already.

 

[MinnesotaEric]

Wow, lots of comments that could lead you into deep trouble. You need a proper consultation with an attorney specializing in transfer of farm estates.

Rules here that may/may not apply there: If you should be forced to sell in your lifetimes then the cost basis you figure profit from and then pay taxes on, starts from MIL's purchase long ago. But if you inherit via will (or Trust, here) then upon MIL's death, your cost basis basis jumps up to value at that date. This difference in taxes you owe could be hundreds of thousands of dollars. (My experience was prior to the increase of estate tax exemption recently).

And an issue unique to California: because of inheritance my property taxes are based on the Prop 13 rule: tax 'appraised value' is 1973 value + 3% per year thereafter. My annual property tax bill is only a third, maybe a quarter, of what more recent neighbors pay on comparable property, where appraised value started from market value when they bought the property.

So deeding it to you now in any form while she is living could be very costly later if you were forced to sell due to some unforseen disaster in the future.

I have no idea if this applies to you, I intend only to caution you that you need professional advice. Internet opinions are no help beyond suggesting things to watch out for.

Another concern:

If the MIL winds up running out of money, in the USA medical bills will be charged to her estate, including the real estate. Without a transfer, there could be nothing left to inherit. In the states, we have a five year clawback that begins ticking on the transfer of the RE. The clawback period is why a quit claim may be preferred once the tax event horizon, if any, is understood.

Also, while not seeking to make a political remark, in the USA, thanks to an unforeseen issue with Obamacare, once affordable health plans for the lower income brackets have gone away and replaced with Medical Assistance plans. Those plans will seek to charge the estate for any medical payments after the person becomes age 55. This last one is a becoming a big problem for people working in rural communities where people have land, but do not have year round jobs and so are now being forced to carry medical insurance, that on the lower spectrum is funded through medical assistance. The take away is that the state is now going to take away the inheritance of the lower brackets of working poor.

 

[California]

.... The take away is that the state is now going to take away the inheritance of the lower brackets of working poor.

This issue is unavoidably political. Fundamentally does responsibility to protect the value of an an inheritance rest on the public at large (because assets were allowed to be quit-claimed in anticipation of medical costs), in contrast to the estate of the deceased bearing the cost for that person's medical care. Who we vote to represent us is how such issues are determined.

 

[teejk]

This issue is unavoidably political. Fundamentally does responsibility to protect the value of an an inheritance rest on the public at large (because assets were allowed to be quit-claimed in anticipation of medical costs), in contrast to the estate of the deceased bearing the cost for that person's medical care. Who we vote to represent us is how such issues are determined.

As a tax advisor I always struggled with the ethics of "estate stripping". Otherwise libertarian viewed people saw no qualms in a member of the family with substantial assets becoming a ward of the state (hardly a libertarian viewpoint)...guess it came down to "everybody does it and I've paid for and will continue to pay for others that do it" (that's how I rationalized it anyway). Btw when I started the "claw-back" period was 12 months, then it went to 18 months, then to 24 months, then to...

 

[hosspuller]

My advice is consult a Canadian lawyer... But before you meet with him/her, make a list of your objectives. Lowest cost to transfer, lowest taxes, simplest transfer, shortest probate, etc. You don't yet know what questions to ask. Ask for alternatives and strategy. Make your time with the lawyer quick. Remember, his time is your money.:2cents:

 

[hosspuller]

As a tax advisor I always struggled with the ethics of "estate stripping". Otherwise libertarian viewed people saw no qualms in a member of the family with substantial assets becoming a ward of the state (hardly a libertarian viewpoint)...guess it came down to "everybody does it and I've paid for and will continue to pay for others that do it" (that's how I rationalized it anyway). Btw when I started the "claw-back" period was 12 months, then it went to 18 months, then to 24 months, then to...

I am of Libertarian views. BUT, I am also not stupid. I didn't create the system or environment. I am going to take every advantage the system allows. It is the fault of the system that rewards poor choices. Taxes are the same. I don't do anything illegal, but I'm not going to pay any more than required.

 

[dmccarty]

As a tax advisor I always struggled with the ethics of "estate stripping". Otherwise libertarian viewed people saw no qualms in a member of the family with substantial assets becoming a ward of the state (hardly a libertarian viewpoint)...guess it came down to "everybody does it and I've paid for and will continue to pay for others that do it" (that's how I rationalized it anyway)....

I mostly agree but... :laughing::laughing::laughing:

The flip side of the coin is why should a family loose a life time of work to an inefficient system created/mandated by the government? I am talking purely health care.

I have an elderly relative who I think the tax payer is helping care for in a retirement center and they had to pay until their money was mostly/all? gone. I hate to see it and it sucks, but the taxpayer is paying for a portion of the care, so the person should pay as much as they are able. I would hate to see it come out of the estate but the taxpayer should not be held liable if the patient has the money.

One of my grandparents said she would NEVER go into a nursing home. She said it frequently. Eventually she got to a point she needed to go into a home. The doctor told her she needed to go. My grandmother died in a matter of days. She said she would not go into a home and she did NOT! :thumbsup: I hope I can check out on my own terms as well.

Later,
Dan

 

[teejk]

I mostly agree but... :laughing::laughing::laughing:

The flip side of the coin is why should a family loose a life time of work to an inefficient system created/mandated by the government? I am talking purely health care.
Dan

Further rationalization! I don't do that stuff any more but for anybody looking at it make SURE that any recipients of assets are aware of the rules lest they spend it all and have to pay up when the gov't comes knocking.

 

[dmccarty]

Further rationalization! I don't do that stuff any more but for anybody looking at it make SURE that any recipients of assets are aware of the rules lest they spend it all and have to pay up when the gov't comes knocking.

I do not think it is a rationalization but a fact. The system is the system and if you play by the system's rules you are good to go. That is not a rationalization either. We have to live with the system even if we don't agree with it.

Don't get me started on Social Security...

Later,
Dan

 

[sixdogs]

Anyone know what the OP decided to do?

 

[chado613]

I am going to make an appointment with a lawyer to discuss options.
But so far I will be looking at the following fees:
Lawyer Fee - to transfer names on to ownership($700-1200)
Land Transfer Tax - ($3000)
Admin Fee from Bank to add name(s) to Mortgage -($300-$500)

These are all estimates. The land transfer tax is the kicker