Generally speaking, real property (“property”) is often not specifically dealt with in a Will and therefore, it forms part of the residue of an estate. In this case, the executor is generally required to sell the property for cash as soon as possible, but this may not be the best strategy and other options should be considered.
First things first, occasionally a client’s recollection is imperfect, so confirming how legal title is held at the Will planning stage can alleviate dealing with bigger issues down the road. For instance, consider a case where a Will specifically gifts a specific property to someone that the testator doesn’t even own. Someone isn’t going to be happy and a blissful relationship between litigators begins! Obtain a Property Identification Number (“PIN”) search to be sure.
The following are some questions to be considered when determining how to deal with property in a Will:
- Does the testator intend that a certain property be delivered to a specific beneficiary? If so, then it is necessary to include a specific bequest provision in the Will.
It’s important to note that a specific gift of real property ensures that the real property is the last asset sold to satisfy creditors, if necessary. In the event that a property does have to be sold to satisfy creditors, any proceeds not used will be delivered to the beneficiary who was to receive the specific property. In this case, there would be no residue for the residual beneficiaries.
- Does the testator intend that a gift of property is to be delivered free and clear of any mortgage registered on title? If so, then it is necessary to specifically provide for that in the Will, otherwise, section 32 of the Succession Law Reform Act[1] provides that a mortgage registered on title will follow the property, i.e. the beneficiary will be responsible for the mortgage.
- If the property is sold by the testator during their lifetime, does the testator intend that the beneficiary receive any replacement property or proceeds of sale? If so, that must be stated in the Will. It’s also good to make sure any attorneys for property are aware of this.
- Although probate planning strategies are not the focus in this blog, it should be noted that if probate planning options are being considered, the PIN should be reviewed to determine whether the property is eligible for the first dealings exemption.
- If, in the end, the property will form part of the residue of the estate, consider whether the testator intends to provide their executor with some flexibility around the requirement to sell the property for cash. If so, include a provision in the Will that specifically authorizes the executor to use their discretion about whether to retain the property for a period of time or to distribute the property in kind.
It’s important to be clear about the testator’s intentions to ensure there aren’t unintended consequences or disappointed beneficiaries.
[1] Succession Law Reform Act, R.S.O. 1990, c. S.26
1 Comment
Yolanda Benoit
December 4, 2020 - 4:21 pmAn excellent article that covers a variety of situations that can occur with a piece of real property in an estate. Thank you, Tracy!
Our charity was a specific beneficiary of an estate where the real property was the largest asset. The estate wasn’t very liquid. The executor was the residual beneficiary and our charity was the only specific beneficiary of $10,000. Our charity received 20% of its specific bequest and the executor kept the real property for themselves. They sent us monthly postdated cheques to pay off the bequest, which kept bouncing until the account was shut down. We sought legal counsel and were informed that the best way to realize our gift was to take the executor to Civil Court, which would have included 7 hours travel one way, hotel stays, time away from work, etc. The cost to do this was prohibitive in relation to the gift. However, the testator’s wishes were not fulfilled in terms of the specific gift. Is there a way for lawyers and notaries to draft a will that will ensure that the executor liquidates the real property, if needed, to fulfill the testator’s wishes? In many, if not most cases, the cost for a beneficiary to “right a wrong” (eg. passing of accounts) or to clarify what is “right” is cost prohibitive – and the testator’s wishes are not being respected. The testator is no longer on earth to see how their wishes are being followed (or not followed). The commitment to honor the wishes of our supporters, in life AND death, is VERY important to charities.