Death is a sad aspect of life. Sometimes, we detect it as a result of ageing or illness, but or it’s the outcome of a devastating accident. The loss of loved ones is particularly difficult to bear and, consequently, having to deal with the consequences.
Many people make fun of being out of debt when they die. But is that true? What happens to debt once someone dies? Particularly what happens to the mortgage of a homeowner?
What exactly is the Probate Process?
If you are unsure of what the estate your loved one left to you, there may be a legal procedure that will follow, referred to as probate. The executor of the deceased’s estate is charged with making payments on any remaining debts in their name and also dividing all assets among the beneficiaries listed in the will.
While the will of the deceased may be located in other places, it may be kept in their own personal safety deposit box at their credit union or bank. If that happens you, as the executor are legally entitled to examine the contents of the box to find the will, so you provide an official death certificate to the banker who will oversee the process.
If you can’t find the will on the internet it is possible to check through the Vital Statistics Agency, where the deceased might have registered the will or provide the address where it’s kept. According to the law of the Canadian Estate Administration Act, you have to then send documents of your will designated heirs or beneficiaries.
The Legal After-Process
After the will has been found and is registered for probate, a legal procedure is set to begin, during which various things could take place, including but not only:
- Family members of the deceased’s immediate family members are able to seek any modifications to the will at the hearing. Any further proceedings will be subject to the limits under Canada’s Wills Variation Act.
- During the probate process, spouse or children of the deceased may contest the provisions of the will should they feel their share of the inheritance is not sufficient or if they aren’t identified at all.
- The will’s terms could be invalid when the deceased was married before the will was written. However, any benefits that were initially granted to their spouse would be void if there was divorce proceedings involved.
Probate Process: Laws and Taxes Probate Process: Laws and Taxes
There are other legal proceedings that could happen during the process Canada’s probate laws are different in accordance with the location the location where the proceedings are conducted. In reality, the majority of provinces and territories provide exemptions when the estate of the deceased is below a certain threshold.
Additionally there are a variety of legal and tax-related fees will be incurred in an estate’s probate. The majority of states count these expenses based on the value of the deceased’s assets before the executor takes care of any outstanding debts or costs that the estate has accrued.
Fortunately, the assets that are that are a result of the inheritance won’t be taxed in the same way as tax on estates in the United States. However, the estate will be obliged to pay taxes on the income that the deceased earned following their death.
What Debts Are Subject to Probate?
There are fortunately, certain kinds of debts that can be kept out of the process of probate and collection after the death of a borrower. For instance credit card companies as well as other providers of credit that are unsecured products generally declare such loans as losses since the legal procedure would be too costly and complicated in comparison to the small amount of compensation they might receive.
However given that there are some assets to be considered, the majority of mortgage lenders and other sources of secured debt will be the first to be paid and there’s more incentive for them to pay.
Mortgage Debt – The death of the sole owner The Sole Owner of the Mortgage
As a reminder, a person has to take responsibility for not-paid debts when they pass away. However, the same law applies to mortgage payments that are left on their home that could be challenging when the property is of sentimental value or has family members are still living there.
Whatever the provisions in the will a lot of provinces and territories demand that these debts undergo the probate procedure. In this case the estate of the deceased, comprising their executor of choice is responsible for the majority of the debts that remain.
As previously mentioned in the previous paragraph, there are a few creditors that are given priority payments in the case of the death of a borrower Mortgage lenders comprise just one of them. The process is easier in the case of a deceased sole mortgagee.
As with the executor the estate trustee is identified in a will of a deceased person as someone who’s given the responsibility of different assets. In general, they’re responsible for conserving the titles to the deceased’s estate for the beneficiaries or heirs. They might even be named executors if the will doesn’t mention any or all of the beneficiaries accept the responsibility.
If and when an estate trustee has to assume the sole ownership of a house the trustee will be accountable for the payment of any remaining insurance and debts in the property, and also having the property appraised and ready for resale. It won’t be possible to sell the property until the entire debt on the property is paid off.
Credit Card Debts – Demise of spouse or co-owner
If the house was subject to the terms of a co-signed mortgage or joint mortgage, any property-related obligations will fall under the control of the spouse who is the survivor or co-owner. This is the same in the case of any other debts co-signed. Fortunately, for the moment joint mortgages don’t have to be affected by probate proceedings in Ontario however, this may differ in the remainder of Canada.
If the spouse who is surviving or co-owner wants to that they remain on the property and take on that mortgage up until the time they can manage to sell the property. Or, they can pay off the loan and start the process of selling it immediately. To reduce the risk of identity theft the buyer should make sure that any co-signed accounts changed to their own name.
The spouses who survive should be cautious should they decide to renew the mortgage instead of paying it off, they might be required to apply again using their own financial strength and creditworthiness. This can be a challenge. Also, in the event that they aren’t eligible for the loan, the lender might demand full payment right away.
Mortgage Insurance vs. Life Insurance
If you believe your family members will not be able to pay for your household debts in the event of your death it is essential to create a life insurance policy prior to your death to help clear any unpaid obligations. This is particularly important when it was initially an unsecured mortgage you share with your spouse , or common-law partner.
Although mortgage insurance is based on the same premise however, it’s not the most beneficial option since the family’s final payout is likely to decrease when you pay the loan off. In the same way the insurance for credit card balances could be beneficial, but it is ineffective, as the cost will be based on to the balances that the deceased has not paid.
This, however, isn’t the case for life insurance, which is why the surviving spouse, heir or beneficiary can always make use of the non-taxable life insurance payment to pay off their remaining mortgage or other debts with high interest.
Positive Equity vs. Negative Equity
Also, it is possible the deceased’s property is worth more than what they have to pay for the home. Any equity that remains could go directly to the beneficiaries or heirs if they decide to either sell or assume the mortgage.
If the mortgage amount is greater than the value of the house and nobody is able to pay the amount, the executor and the mortgage lender might be able set up an auction. Although this could result in an enormous loss on the part of the buyer, they’ll be able to remove a property that is costing them too much.
If there aren’t any descendants and beneficiaries or no of them can be able to take over the mortgage and the lender is able to close the property and then sell it later.
What happens to a reverse Mortgage in the event of your death?
Reverse mortgages are designed for homeowners who are five years of age and wish to get an equity-based mortgage that is secured by their equity. This is often referred to by the term “equity release” and allows you to take advantage of the maximum of 55% the house’s market value, without the need either sell the house or pay the mortgage until the mortgage’s full amount is paid.
Like a normal mortgage, the homeowner who has survived must pay their last reverse mortgage debt in the event that they choose to sell the house. If they don’t, they are able to remain in the home and will not have to pay the last loan payment due.
The Bottom Line
As you age it becomes crucial to think about the purchase of life insurance, and speaking to your family members regarding what will take place to these items should you die. It’s also crucial to talk with a professional regarding drafting your will to leave a legacy for your family members other than mortgage obligations.
Is probate necessary for all wills?
Despite the fact that most written wills in Canada undergo probate, certain conditions may exempt you from this process. If your estate is small and all assets are held jointly with a spouse or civil partner, you might be able to avoid probate. Additionally, some First Nation members have special exemptions as well. Nevertheless, since rules vary depending on where you live in Canada it’s best to consult an expert like an estate lawyer before making any decisions about whether your will should go through probate or not.
How many months or years will the probate process typically take?
Probate within Canada can be a long and tedious process, as the time it takes to complete may range drastically due to several factors such as estate complexity or even one’s geographical location. Nonetheless, you could find yourself going through probate in only weeks or perhaps up to a year!