These appraisals function in the following situations…
Couples will find that an unbiased, objective appraisal is useful in moving forward to a constructive settlement.
Obtaining fair market evaluations of their respective real estate assets establishes a value benchmark of the property.
Co-owners of a real property sometimes find themselves wanting to buy or sell to or from the other partner. It is efficient that a neutral party conduct an unbiased, objective appraisal, thus providing a basis of discussion.
Estate/Probate (see below):
Estate executors request a formal appraisal of the home in order to submit an application for probate. An objective appraisal will assist in the client's proactive estate planning.
Capital Gains: (see below)
Owners of income producing properties crystallize the property's value as of specific dates to establish a base to be referenced at the time of a future sale or change of use.
Clients may find themselves selling a home privately to a friend, or internally to a relative. An unbiased and objective appraisal facilitates the financial aspect of any negotiation while identifying a fair and equitable value.
Clients occasionally require values from months, years, or even decades ago. My data base extends back to the 1960's.
What is an Estate Trustee?
Sometimes referred to as the Executor of an estate, the Estate Trustee is the person or persons and/or trust company appointed in the last will and testament of the deceased to see that their wishes as set out are fulfilled. This means taking full responsibility for administering and distributing the property of the deceased as well as being legally accountable to the beneficiaries or creditors of the estate. Also note that the age of at least one of the trustees should be less than the testator.
Why were you chosen?
Being an estate trustee is a position of trust and honour: a family member or friend had the confidence in you that you would perform the duties of this position to the best of your abilities while also recognizing that you possess specific qualities. These include a competence in business, financial responsibility, impartiality, availability, time and willingness and not least of all sympathy.
Requirements and Role of an Estate Trustee
At least a year of your time will be required, often longer, in order to settle an estate. An executor’s duties include over fifty different tasks such as liaising with lawyers, appraisers for jewelry, antiques and artwork, real estate agents, accountants, insurance and pension providers, creditors and the Canada Revenue Agency.
You must open an estate bank account and manage the assets as well as locate and monitor all property, including valuables and safety deposit box contents, ensure that tax matters are resolved (file tax return and request Tax Clearance Certificate), and review all financial records. Primarily however your most important duty is to ensure that the deceased’s wishes as stated in the will are carried out.
Administering the estate means meeting with family members and beneficiaries, managing the assets including all real estate, carrying out the banking and bookkeeping and distributing the proceeds from the estate to the beneficiaries. Within this context a number of other considerations may present themselves such as: providing for support or education of a beneficiary; preserving an underage beneficiary’s share of the inheritance; providing ongoing support for a spouse or beneficiary with a special need and also considering the possibility of a beneficiary’s changing financial needs over time.
Other duties may include: notifying a previous employer to determine survivor benefits or insurance proceeds; notifying Health and Welfare to cancel Old Age Security and Canada Pension Plan payments; applying for Canada Pension Plan Death Benefits, Survivor’s Benefits or Orphan’s Benefits if applicable; canceling health insurance coverage; canceling credit cards; if necessary requesting from Canada Post the re-routing of mail; completing or canceling securities trade orders, canceling driver’s license, magazine and newspaper subscriptions, telephone, cable, internet and memberships.
Certificate of Appointment of Estate Trustee
Formerly called probate, the Certificate of Appointment of Estate Trustee is a grant from the court made out to the representative named in the last will and testament as Estate Trustee. Based on the obvious necessity and before there is time for the certificate to be granted, the estate bank (usually the deceased’s) will provide drafts to cover funeral expenses, immediate family needs and court fees providing the balances are sufficient.
The application made in consultation with your lawyer occurs only after the preparation of both an inventory of assets and a list of debts and obligations to date are completed and this application must be served on all beneficiaries. Once the necessary probate tax is paid to the court and the Certificate granted, the Estate Trustee is in a position to administer the estate.
Real Estate and the Estate Trustee
Dealing with the real estate holdings of the deceased is only one of many duties the estate trustee will face. Consultation with a lawyer, preferably the one who drew up the will will provide you with any special terms or instructions. It is recommended that the estate lawyer search the title to all real estate in which the deceased had an interest. It is inappropriate to distribute assets without receiving a written opinion from the lawyer. It is your responsibility to take all necessary steps to secure property.
Familiarizing yourself with the deceased’s private and personal business interests include taking an inventory and custody of real estate deeds, mortgages, cash, securities, jewelry, art and other valuables. Insurance coverage on real estate, automobiles and household property is critical. If any of the deceased’s properties – home, business, cottage, farm, investment properties are vacant you must check on the adequacy of insurance coverage and if necessary increase it. Insurance review must be thorough and prompt since an estate trustee may be held responsible for losses if assets are under-insured. If mortgages and real estate investments exist, your lawyer will assist you in collecting payments and other monies due.
When reviewing and inspecting the real estate component of the deceased’s estate your lawyer will request that you obtain formal written appraisals, usually two or three for each property. Bosley Real Estate understands this critical step and is not only highly experienced in undertaking this process but compassionate towards your particular needs and obligations at this time. Our trustee advisor will guide you through the steps, arranging appraisals from a variety of reputable and reliable registered sources and prepare the documentation for your lawyer’s review.
Once the lawyer has the necessary appraisals he/she is able to proceed towards establishing a value for the property through the process of averaging values. An appraisal of a private residence, for example, involves a comprehensive review of the property including preparation of a set of comparable listings in the neighbourhood and an analysis of recent and prior sales.
In addition Bosley Real Estate Ltd. can assist you with checking leases, mortgages and taxes and if necessary help you to provide continuing supervision of the deceased’s real estate holdings. Obtaining an appraisal for a private residence usually takes no more than a few days and will take you one step further in determining the value of the estate.
In some cases a property will be gifted outright to a beneficiary and it is necessary for your lawyer to transfer the property into the beneficiary’s name. Please note that a real estate transaction can not be finalized until the Certificate of Appointment of Trustee is granted. If it is decided or directed to convert the property to cash (perhaps for the purposes of disbursing funds among a number of beneficiaries) Bosley Real Estate Ltd. can assist you in listing the property for market sale when the time is right. This applies not only to a private residence but also to businesses and investment properties – a rental apartment building or a corner store. Negotiating an estate sale requires sensitivity on the part of your real estate agent or broker.
It is not uncommon for there to be more than one estate trustee as well as a number of beneficiaries all of who will have concerns (price, closing dates, chattels etc.) that will need to be addressed. Your estate advisor and agent/broker can help smooth the way to effect a flawless, timely and profitable sale wherein all parties’ concerns are satisfied.
Capital Gains Tax on Investment Properties
I am often asked to appraise properties in one of these situations:
1. The property was at one time a 'principal residence', but then the use was converted to 'income property'.
2. An 'income property' may have been converted to a 'principal residence' at some point.
3. The owner has lived in half of an 'income property' and the second unit was rented.
In each of these 3 scenarios the issue of Capital Gains Tax arises. When that happens an appraisal of Fair Market Value is required by the CRA for measuring the taxable portion of the gain
Designating the Principal Residence:
You and your spouse/partner/children are permitted to designate one home as your principal residence for any particular year. If you happen to own two homes, or a home and a cottage, only one property can be designated as a principal residence at any given time.
If you happen to move out of your home and rent it, you may still be permitted to treat the property as a principal residence under certain circumstances.
Your accountant will be able to advise you regarding the most efficient property to declare
The Rate of Capital Gains Tax:
Capital Gains Tax is calculated as 50% of the net gain on the property taxed at the owner’s marginal tax rate in the year of transfer.
Situation 1: A Principal Residence is converted to a rental property.
Purchased as Principal Residence in 2000 for $500,000
Converted to Income Property in 2007.
Sold in 2013 for $1,000,000
The owner would pay a Capital Gains Tax on the difference between the values in 2007 and 2013.
There would be no tax payable for the period between 2000 and 2007.
The tax implications are based on the change in value between 2007 and 2013.
Situation 2: A Rental Property is converted to a principal residence.
Purchased as a Rental Property in 2000 for $500,000
Converted to Principal Residence in 2007
Sold in 2013 for $1,000,000
The owner in this situation would pay a Capital Gains Tax on the difference in values between 2000 and 2007.
There would be no tax payable for the period between 2007 and 2013.
The tax implications are based on the change in value between 2000 and 2007.
Situation 3: The Owner Lives in a Portion of an Income Property
Purchased Duplex in 2007 for $750,000 (and rent out one unit for $2,000 per month you would report your annual income from rent ($24,000) and offset this income with expenses associated with the rental unit).
Sold in 2013 for $1,000,000
The owner in this situation would find a tax shelter by claiming half of the property as a principal residence. The tax on the gain would be 50% x $250,000 = $125,000 x 50% = $75,000 x marginal tax rate.
(Consult your accountant or CRA regarding your own situation)
In any event the CRA will require a Formal Appraisal of the subject property as of the applicable conversion date..
With full access to historical sales, whether on MLS or privately sold, I am able to accurately appraise the property as of the 2007 transition date.
Often, on the advice of their accountant, the client will proactively request the Appraisal at or near the time of the transition, thus establishing a base price for future calculations.