In the good ol’ days, family land was simply passed on from one generation to another. This was useful for building up family farms, especially. Each generation could learn how to till the same piece of land.
Nowadays, even city slickers might want to transfer a mortgage within their families. This insures that both younger and older generations, are well-taken-care-of. Here is how to transfer a mortgage to a family member, the easy way.
Blood is Thicker Than Water
Keeping everyone in the family happy can be a challenge. You want all your relatives to “be on the same page,” while being free to develop their own personalities. Sometimes, when you start to talk about property, emotions take over. You don’t want to ruffle feathers.
How do you transfer the property, so the title won’t be a bone of contention down the road? Is co-ownership, an option or would it create too many headaches?
Don’t mix business and pleasure.
All generations follow a similar cycle of life. They work hard while young and accrue valuable assets, along the way. By the time that grandpa and grandma reach their Golden Years, they might need more help, maintaining their property. It might be time for you to transfer the mortgage to ensure that all parties’ wishes are respected.
Of course, a straight sale to your family member is always a possibility, but why bother with all the steps? Land transfer between family members can be easier, if you do it the right way. Each process has different advantages, with respect to title, rights, taxes and speed. We will provide the four easiest ways to transfer property to family members, so you can keep everyone happy.
1. Donation Inter Vivos
The “Gift Deed” or Donation Inter Vivos is a common way to transfer a mortgage to a family member. The Donation Inter Vivos is a “living gift.” You are giving the property to a “loved one.”
A gift involves no consideration or payment. The donor (he who gives the property) and the donee (he who receives the property) must do so in writing. There might be a “transfer tax” and “capital gains tax” assessed. You also must determine if the donor needs to move (if the property was his primary residence.)
2. Donation Mortis Causa
If a family member uses the house as his primary residence, then the Donation Mortis Causa might be better. The word “Mortis” mean death, so the land transfer will only take place after the owner passes on. But, why can’t you simply transfer land in your will?
Of course you can, but since the will covers so much ground, it can be easily contested. This would force the probate court to take over, which could take years and be very expensive. Do you really want your house, sitting vacant for years? Probably not. The Donation Mortis Causa transfers the property much faster.
3. Quit Claim
As mortgages have become more complicated, some have emphasized more simple property transfer documents, like the “Quit Claim Deed.” This is becoming more popular for “underwater” properties or as a fast way to settle disputes. The “Quit Claim Deed” is great for family land transfers, since both parties already know the history of the property.
Unlike the previous mortgage transfers, this Quit Claim is oftentimes between you and your lending institution. This ends your original mortgage duty to make regular payments and allows the lender to re-acquire the property. This is a nice alternative to foreclosure.
Your lender cancels your debt and receives your property, by agreeing to the terms of the “Transfer of Title.” Thereafter, your financial institution can create a new unencumbered mortgage for your family member.
4. Joint Tenancy
If your relatives are on very good terms, then “Joint Tenancy” can be an easy way to transfer a mortgage. You must sign a formal legal document, giving you equal rights to the property. You should also determine the “Rights of Survivorship,” which means that if one family member dies, the other one gets all the rights to the property.
When you sign all of these legal land transfer documents, make sure you do so in front of a disinterested witness (usually non-family members are preferable). Then, record the legal document with the local Land Registry Office (LRO).
Applicable Property Transfer Taxes
There is no Canada gift tax or estate tax per se, but the government might assess a 50% capital gains tax, if the fair market value has increased on the property. The “transfer tax” might be between 1% and 1.5% of the land’s market value.
In some respects, our Canada law is a bit odd because it treats a “property gift” as the same as a “property sale.” The essential issue is the land value. But, who pays these property transfer taxes?
When income-producing property (like an apartment complex or condominium development) is transferred to a family member, then the income from the property will be “attributed” to the original owner. The owner (or donor) will be required to pay the capital gains tax to the Canada Revenue Agency (CRA).
Make Smooth Family Mortgage Transfer
Each of the aforementioned legal land transfer processes have their advantages and disadvantages. Look carefully at your family situation. What do you want to accomplish? Are your family members of the same mind with respect to how to use the property? If they are, then you can cut down on some of the paperwork.
Land changes hands every day. Transferring a mortgage to a family member, allows each generation to fulfill its proper role. Everyone wins, when you do it right. Give us a call today, we look forward to walking you through the process step by step.