Are you planning to leave real estate to a loved one under your Will? Do you want that property to be transferred free of debt or other claims?

If you’re making a specific gift of your interest in freehold or leasehold property that is subject to a mortgage, as defined in Ontario’s Succession Law Reform Act (RSO 1990, c S.26) (“SLRA”), at the date of your death (the “Property”), unless your Will (or a deed or other document) expressly provides otherwise, the Property will be distributed to your beneficiary or beneficiaries (intended beneficiary/ies, “Beneficiary”) with such mortgage(s) registered on title. Section 32 of the SLRA provides that such Beneficiary is primarily liable for the payment or satisfaction of the mortgage debt.

As a drafting solicitor, I appreciate that language matters. Words have nuanced differences. If you intend for your Beneficiary to receive the Property debt free, consider what language best meets your intentions.

For example, consider the terms “encumbrance,” “financial encumbrance,” and “mortgage or charge.” These terms are not interchangeable:

• Encumbrance: This broad term includes any right to or liability in the property held by third persons, such as charges or liens. It may be non-financial, such as easements or encroachment agreements.
• Financial Encumbrance: This term includes liens, charges, mortgages, and other financial claims in the property.
• Mortgage or Charge: Beyond traditional mortgages, this term also encompasses any financial security registered against the property for securing money, such as a home equity line of credit secured against the property.

Using one term over another may change how the debt or liability attached to the Property is satisfied by your estate. This may impact the interest the Beneficiary receives in the Property and perhaps the value of your remaining estate available for other beneficiaries.

If your Will specifies that the meaning of “mortgage” is as defined in the SLRA, debts across multiple of the above noted terms may be covered because the definition is broad under the SLRA. Section 32(4) of the SLRA defines “mortgage” as including “an equitable mortgage, and any charge whatsoever, whether equitable, statutory or of other nature, including a lien or claim upon freehold or leasehold property for unpaid purchase money, and “mortgage debt” has a meaning similarly extended.”

Different terms may sound similar but have differences with significant impacts. Your estate planner’s understanding of the nuances, and the language chosen in drafting your Will, is crucial to achieving your intentions.