Inheriting the Encumbered Estate Residence
Inheriting the estate residence can mean inheriting problems as this article in the National Post points out. An in specie gift of the estate residence that is encumbered by a mortgage is a wrinkle that runs counter to the usual practice of paying the debts of the estate before making a distribution.
Testators should ensure that, when leaving their home, they don’t also leave a financial burden for their beneficiary. As quoted in the article: “The beneficiary doesn’t have to assume the mortgage-debt obligation. You can say ‘No, I don’t want the mortgage.’ But, you don’t have a choice of taking half of the gift...You either take the house with the mortgage or you don’t take the house.”
One option to avoid leaving mortgage debt is credit protection insurance. The National Post quotes a director of mortgage advice: “A credit protection plan is part of your bigger financial plan, not just around your mortgage...“The credit protection allows you to have insurance on your mortgage. As you pay down your mortgage, in case you suffer critical illness or on your passing, the mortgage outstanding balance is paid off.”
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