Selling a Real Estate Property from an Estate to an Heir in Quebec

When a person dies owning a house, condominium, land, rental property or other real estate in Quebec, the property becomes part of the deceased’s estate. One question that frequently arises during the settlement of an estate is whether an heir can purchase the property from the estate rather than having it sold to an unrelated third party.

In Quebec, selling real estate from an estate to an heir is possible, but the transaction must be handled carefully. The liquidator of the estate must consider the rights of all heirs, the value of the property, the debts and obligations of the estate, the terms of the will and the overall administration of the succession.

This type of transaction can be particularly useful when one heir wants to keep a family home, cottage, income property or other immovable while the other heirs prefer to receive money.

Can an Estate Sell a Property to One of the Heirs?

Yes. An immovable belonging to an estate may generally be sold to an heir when the circumstances of the succession allow it.

The fact that the buyer is already an heir does not necessarily prevent that person from purchasing the property. However, the transaction should be distinguished from simply receiving the property as part of the heir’s inheritance.

In a sale, the estate disposes of the real estate in exchange for a purchase price. The proceeds then form part of the estate and can be used to pay debts, expenses and taxes or, eventually, to make distributions to the heirs.

The transaction must therefore be considered as part of the overall liquidation of the estate.

The Role of the Liquidator in the Sale of Estate Real Estate

The liquidator is responsible for administering and settling the estate.

Among other responsibilities, the liquidator normally identifies the estate assets and liabilities, prepares an inventory, deals with creditors and tax obligations, administers the property and ultimately distributes the remaining assets among the heirs.

If the estate owns real estate, the liquidator must determine how that property should be dealt with in light of the will, the estate’s financial situation and the rights of the heirs.

A proposed sale to an heir should therefore be evaluated in the same broader context as any other significant transaction involving estate property.

Determining the Value of the Property

One of the most important issues when selling an estate property to an heir is establishing its value.

A municipal assessment does not necessarily represent the current market value of a property. Depending on the circumstances, obtaining an independent appraisal or other reliable evidence of market value may help establish that the proposed sale price is reasonable.

This becomes particularly important when several heirs are involved.

For example, suppose three heirs have an interest in an estate that owns a house. One heir wants to purchase the house while the other two want to receive their respective shares in money. Establishing a reliable value for the house can help ensure that the transaction does not unfairly benefit the purchasing heir at the expense of the others.

Does the Property Have to Be Sold at Market Value?

The appropriate sale price depends on the circumstances of the estate.

Where several heirs have economic interests in the succession, selling substantially below market value may create disagreements because the reduction in price can reduce the amount ultimately available for distribution.

For this reason, the liquidator should be able to explain how the sale price was established and why the transaction is appropriate for the estate.

If all interested heirs agree on the value and structure of the transaction, the process may be considerably simpler. When there is disagreement, obtaining objective evidence concerning the property’s value becomes especially important.

Can an Heir Use Their Inheritance to Purchase the Property?

In some estate transactions, the purchasing heir may ultimately be entitled to receive a portion of the estate.

This can sometimes affect how the transaction is financially structured.

For example, an estate property may be worth $600,000 and an heir may eventually be entitled to a substantial share of the remaining estate. Depending on the circumstances, the parties may consider whether part of the heir’s entitlement can be taken into account when determining the amount that must actually be paid to complete the transfer.

However, an heir’s expected inheritance should not automatically be treated as money already available to that heir. Before the final distribution of an estate, outstanding debts, expenses, taxes, claims and other obligations may still have to be determined and paid.

The sale and the heir’s eventual inheritance therefore need to be considered within the complete estate settlement.

What If Several Heirs Want the Same Property?

A more difficult situation can arise when two or more heirs want to acquire the same house, cottage, land or other real estate.

The liquidator must remain attentive to the rights and interests of the heirs and to the terms governing the succession.

Possible solutions may include negotiations between the heirs, obtaining an appraisal, establishing an agreed purchase procedure or selling the property under conditions designed to obtain a fair value.

The appropriate solution depends on the will, the ownership structure, the estate’s obligations and the degree of agreement among the heirs.

What If the Heir Purchasing the Property Is Also the Liquidator?

Additional care is advisable when the liquidator personally wants to purchase property belonging to the estate.

The liquidator is administering property for the purposes of settling the succession while simultaneously having a personal interest as the proposed buyer.

This creates an obvious potential conflict between the liquidator’s personal interest in obtaining favourable purchase terms and the responsibility to properly administer the estate.

Transparency becomes particularly important. Establishing the property’s value independently, documenting the proposed transaction and ensuring that the interests and rights of the other heirs are properly considered can help reduce the risk of future disputes.

The Estate’s Debts Must Be Considered

Before estate property is transferred or the proceeds of a sale are distributed, the financial obligations of the succession must be considered.

An estate may have obligations such as:

hypothecs or other debts secured against the property;
income taxes and other tax liabilities;
municipal and school taxes;
condominium expenses;
insurance and maintenance expenses;
professional and administration expenses;
debts owed by the deceased; and
other claims against the estate.

Selling the property to an heir does not eliminate these obligations.

The liquidator must therefore consider whether the estate has sufficient assets to satisfy its obligations before distributing the remaining value among the heirs.

Hypothec and Financing Considerations

An heir who wants to purchase estate real estate may need financing.

From a practical perspective, the transaction may resemble an ordinary real estate purchase: the buyer may need mortgage approval, proof of funds and sufficient financing to complete the transaction.

Existing financing on the property must also be examined. A mortgage registered against the deceased’s property does not simply disappear because of the death.

The manner in which existing secured debt is repaid, discharged or otherwise dealt with must therefore be coordinated with the sale.

Notarial Transfer of the Property

Real estate ownership in Quebec involves formal title and registration requirements.

When an estate includes an immovable, the succession process normally requires documentation establishing the transmission of the deceased’s rights. A subsequent sale to an heir must also be properly documented and registered.

The notarial process generally includes verification of title, registered charges affecting the property and the documentation necessary to complete and register the transaction.

The precise sequence may vary depending on whether the property has already been formally transmitted to the succession or heirs and how the proposed transaction is structured.

Taxes When an Estate Sells Real Estate to an Heir

Tax consequences should be considered before completing a sale.

Death itself can produce important income tax consequences, particularly when the property has increased in value since it was acquired by the deceased.

Further tax consequences may arise during the period in which the estate owns the property or when the property is sold.

The treatment can depend on factors such as:

whether the property was the deceased’s principal residence;
the original cost of the property;
its value at the time of death;
changes in value after death;
whether the property generated rental income;
the date and structure of the sale; and
the tax position of the estate and the purchasing heir.

The tax analysis is therefore separate from the question of whether the estate is legally able to sell the property.

Transfer Duties and Other Transaction Costs

The parties should also determine whether land transfer duties and other transaction costs will apply.

The fact that the purchaser is an heir does not automatically mean that every tax, duty or transaction cost associated with a real estate transfer disappears.

The result may depend on the nature of the transfer, the relationship between the parties and the legal structure used to transfer ownership.

This issue should be considered before the purchase price and financing arrangements are finalized.

Selling the Property Versus Transferring It as Part of the Inheritance

A sale and a distribution of property through an estate are not necessarily the same transaction.

In some successions, the property may be transferred to an heir as part of the division of the estate. In others, the estate may sell the property to the heir, with the purchase price becoming an estate asset.

The appropriate structure can depend on:

the wording of the will;
the number of heirs;
each heir’s entitlement;
the value of the real estate;
the estate’s debts and liquidity requirements;
financing considerations;
tax consequences; and
whether the heirs agree on the proposed arrangement.

For that reason, the desired end result — one heir becoming the owner of the property — does not necessarily determine how the transaction should be legally structured.

Can an Heir Buy Estate Property Before the Estate Is Fully Settled?

Potentially, yes.

An estate does not necessarily have to complete every aspect of its liquidation before a real estate transaction can occur. In fact, selling property may sometimes be necessary to generate the money required to pay estate debts and expenses.

However, the liquidator must understand the estate’s financial position before making distributions or structuring a transaction on the assumption that a particular amount will ultimately belong to an heir.

A distinction should therefore be made between selling an estate asset and making the final distribution of an inheritance.

What Happens When the Heirs Disagree About the Sale?

Disagreement among heirs can significantly complicate a proposed sale.

Common disputes include disagreements about:

the market value of the property;
whether the property should be sold at all;
which heir should be allowed to purchase it;
the purchase price;
expenses paid for the property;
occupation of the property after death;
renovations or improvements;
the calculation of each heir’s entitlement; and
the conduct of the liquidator.

Objective valuation, clear financial records and written documentation of important decisions can become particularly important when disagreements arise.

If the dispute cannot be resolved, the administration or disposition of the property may ultimately require a more formal resolution process.

Documents Commonly Relevant to the Transaction

Although every estate is different, documents commonly relevant to a sale of estate real estate to an heir include:

the deceased’s death certificate or official proof of death;
the will and documents confirming its legal status, where applicable;
proof identifying the liquidator;
estate inventory and accounting information;
the existing title to the property;
mortgage information;
municipal and school tax information;
condominium documentation, if applicable;
an appraisal or other evidence of property value;
documents establishing the heirs and their respective rights;
financing documentation for the purchasing heir; and
the notarial documents required to transfer and register ownership.

Additional documentation may be necessary depending on the estate and the property.

An estate in Quebec can potentially sell a house, condominium, land or other real estate property to one of the heirs.

The central issues are generally not simply whether the purchaser is an heir, but whether the transaction is compatible with the proper settlement of the estate.

Particular attention should be given to the property’s value, the liquidator’s responsibilities, the interests of the other heirs, estate debts and taxes, financing, potential conflicts of interest and the formal transfer of ownership.

When properly structured, a sale to an heir can allow a family property to remain with one beneficiary while permitting the estate to satisfy its obligations and distribute the remaining value among the other heirs.

This text is provided for legal information purposes only. If you have a specific question regarding your personal situation, please contact a lawyer.

Allen Madelin Avocats offer consultations both in person and via videoconference. The first consultation is offered for $125.For more information, please contact us by telephone: 1 514 904 4017 or by e-mail: [email protected].