Protect yourself from fraud through title insurance

A few weeks ago, I mentioned title insurance as a common cost on a purchase. What is title insurance?

Basically, title insurance protects against things you have no control over. The big one is fraud; if someone impersonates you and puts a fake mortgage on your house, or sells it, then your title insurance will fix things.

 

It also protects against a former owner doing work without a permit, or a neighbour building something onto your property.

 

Given the small cost of title insurance, it’s generally well worth it.

Where will you be buried?

In Ontario, much to the surprise of many, you cannot dictate what happens to your body on your death. It is, by law, the property of your executor. For that reason, it is incredibly important to have a will in place that names an executor if you want to ensure who takes care of your body.

There was a case last year that involved six siblings and a dispute over where their mother should be buried. It’s a very sad case to read, but it also clearly illustrates the point that it is critical to think about who will respect your wishes about your burial. Another reason, among many, to be thoughtful about choosing an executor, and to choose one.

Happy Canada Day!

We hope that you have a safe and happy holiday weekend.

3 extra costs to budget for on a sale

Last time I blogged about extra costs on a purchase. Today is three extra costs to budget for on a sale.

  1. Realtor’s commission. You will have to pay it on the sale, and not at a later date. Even if you are selling by yourself, you may have to pay a buyer’s commission. Don’t forget that they have to charge HST on their commission.
  2. Legal costs. Many lawyers (including our firm) will give you an estimate of legal fees and disbursements before you make a decision about who to hire. Get a quote if you can so that you know how much it will cost as it gets taken off the sale proceeds before you get your cheque.
  3. Mortgage discharge. This is where the big costs often come in. Many people assume they know what the penalty will be, and then it ends up higher. There are discharge fees, and fees to register the discharge. You should be able to get an estimate from the bank so that you know what to expect when the closing day comes around.

Severing a joint tenancy to protect an inheritance

Last time, I blogged about not adding someone on jointly to title simply to avoid probate. This time, it’s terminating joint ownership in order to protect your heirs.

In Ontario, if you own property jointly with someone, you can sever the joint ownership at any time with no notice to the other person. Where this comes into play most frequently is with separations. If you have separated from your spouse, and you want to ensure that your half of the house goes to your kids rather than your now ex-spouse, you can sever the joint tenancy. This means that 50% of the house will go into your estate; if you have updated your will, this will put that 50% to your heirs (children, charities, etc.) rather than to your ex-spouse.

If you own a house with someone, and no longer want them to be able to have your half of it, this can be a useful solution.

6 extra costs to budget for on a purchase

When you buy a house, you usually think of one cost: the amount you will pay above what your mortgage is. There are, however, a lot more.

  1. Land Transfer Tax. There is provincial LTT, and if you’re in Toronto, municipal LTT too. LTT is approximately 1.5% of the purchase price, and is payable on closing, so you have to have it available in order to buy your house. There are rebates available for first time buyers, and you should check whether you’re eligible, but be prepared to pay this up front.
  2. Mortgage costs. Some banks charge you to do an appraisal; some charge a lender fee. If you’re putting down less than 20%, you will definitely have to pay for mortgage default insurance, and while they often will simply add that to your mortgage, you will have to pay the tax on it up front. Budget accordingly.
  3. Property taxes, condo fees, fuel tanks: all of these are adjusted on closing so that each party pays their proportionate share for the year or month. You will want to speak to your lawyer about what you should expect to have on hand to be able to pay for these.
  4. House insurance. Whether or not you are getting a mortgage, you will want to have insurance in place, and you will usually have to pay at least a portion of it up front so that it is available for closing.
  5. Legal costs. Many lawyers (including our firm) will give you an estimate of legal fees and disbursements before you make a decision about who to hire. Get a quote if you can so that you know how much to set aside for this.
  6. Title insurance. This is a one-time premium for insurance to protect against fraud, as well as against a former owner doing something to the house that was not permitted. If you’re getting a mortgage, it’s effectively mandatory; even if you’re not getting a mortgage, it’s usually a good idea.

Joint tenancy: to add, or not to add?

I have a lot of clients who ask me about adding a child on title to their property in order to save probate taxes down the road. And to almost all of them, I say that I don’t recommend it.

  1. Is your child married? What happens if they get divorced, and now their ex-spouse claims part of your house as a matrimonial asset?
  2. Does your child run a business? What happens if the business runs into trouble, and your child’s creditors come knocking, looking for their share of your home?
  3. Does your child own their own house? Even if everything else works out fine, capital gains tax for a secondary property is often more than probate tax.

The bottom line: probate tax is often the least of your worries. If you truly want to minimize it, sit down with your lawyer and your accountant and figure out a way to do so that actually makes sense.

5 mistakes first-time buyers make

You’ve saved up your down payment. You’ve picked your dream neighbourhood. You’ve chosen a realtor to work with. Now comes the hard part: actually buying the house. Here are some common mistakes to avoid:

  1. You fell in love with the staged house. Generally, you don’t get to take the staging with you – and a staged home can be just as hard to see past as a home that desperately needs an update. Will your furniture actually fit? Does the layout make sense for your needs, ignoring whether it is beautifully designed? It’s important to think beyond the design when choosing a home.
  2. You didn’t check out the neighbourhood. It doesn’t matter if the house is perfect if the neighbours party all night, every night. Or if you want somewhere to walk with your toddler and the nearest park is across four busy streets. Before you sign an offer, be sure it’s not just the right house, but the right neighbourhood.
  3. You didn’t get pre-approved for a mortgage. This is one of the biggest: you should never, ever go house hunting without knowing exactly what you can afford to buy. Related to that, don’t look at houses that are outside of your budget; you will just want to stretch beyond your means.
  4. You skipped a home inspection. Sometimes, in hot seller’s markets, people minimize their conditions to make their offers more attractive, but this can be dangerous. If you skip a home inspection, in Ontario, you become responsible for any defects that a home inspector could have found – which means that you can’t go after the seller. Unless you have unlimited funds to repair possible damage, you should not risk it.
  5. You forgot about closing costs. Tax adjustments, legal fees, even title insurance: the little things add up. Get an estimate from your lawyer at the beginning so that you aren’t surprised at the end.

Digital assets are really, truly important

Whenever I see a new client about a will, I ask about digital assets. For most people, this is their social media and email account; once or twice I’ve had clients with PayPal accounts that they store money in, but never anything significant. So most of my clients don’t see the need to even address their digital assets, because they’re not worth much.

But what about when they are?

Gerry Cotten died suddenly earlier this year. He was the CEO of QuadrigaCX, a cryptocurrency exchange that happened to be the largest in Canada. Mr. Cotton did not plan for what was to happen in the event of his death; like many in the tech world, death seems to be a low priority concern. The problem in this case is that his lack of planning has led to multimillion-dollar losses for his clients.

Cryptocurrencies are attractive because of their untraceability and security, but that security can also be their downfall. In the case of QuadrigaCX, Mr. Cotten was literally the only person with access to the necessary keys to allow the individual owners to access their investments. Because of his death, up to $250 million is locked up and inaccessible to its owners. It may never be recovered.

Most of us don’t have access to this level of money in digital assets, but dealing with your digital assets is still important. If you haven’t address them in your will, you should.

 

You can go here for more information about QuadrigaCX.

You’ve been approved for a mortgage. Don’t risk it by buying a car.

When you are approved for a mortgage, you will often sign a document that states that they can revoke your approval if your creditworthiness changes before the mortgage is funded. Most people don’t think anything of this, if they even notice it, but it is actually quite important. If you buy a car, or open a new credit card, or sometimes even borrow more money on your existing credit line, that is a change in your creditworthiness, and it can affect your ability to close your mortgage. Your best bet is to hold off on any change to what you have borrowed until after your mortgage has funded.