Buying Out a Sibling's Share of an Inherited Home in BC

A parent's house is often the largest asset in the estate, and it is rarely just an asset. One sibling may want to live in it or keep it in the family, while another needs the money or simply wants the estate wrapped up.

A buyout lets one beneficiary keep the home while the others receive fair value. This guide walks through who controls the house during the estate, the main ways to structure a buyout, the tax points to check, and what happens if siblings cannot agree.

Who controls the house first

While the estate is being administered, the house is not yet owned by the beneficiaries directly. The executor (or administrator, if there is no will) deals with it under the will and the law, usually after obtaining a grant of probate or administration. That means a buyout is normally negotiated with the executor and the other beneficiaries together, and it has to fit within what the will allows.

Executors also have to deal with timing rules, debts and taxes before distributing property. Our guides on selling a house in an estate and the 210-day rule for distributions explain why the executor may not be able to hand over the house straight away.

Three common ways to structure a buyout

• The estate transfers the house to you, with an adjustment. If the will allows it, the executor transfers the house to the sibling who keeps it, and that sibling's share of the rest of the estate is reduced by the house's agreed value. If the house is worth more than that sibling's share, they pay the difference so the others receive their full entitlement.
• The estate sells to you. The executor sells the house to one beneficiary at an agreed price, and the sale proceeds are divided under the will along with everything else.
• Transfer to all of you, then a buyout. The house is transferred to the siblings as co-owners, and one later buys the others' interests. This adds a second transfer, and the tax treatment of each step can differ.

Which route suits your family depends on the will, the size of the rest of the estate, whether there is a mortgage, and how the keeping sibling will finance the payment. It is worth settling the structure before anyone signs a transfer.

Agreeing on value

Most disputes about buyouts are really disputes about value. Ways to narrow them:

• An independent appraisal. A report from a qualified appraiser, ideally one everyone agrees on in advance.
• A tie-break process. If each side obtains its own appraisal, agree beforehand how a gap will be resolved, such as averaging or a third appraisal.
• Costs while you wait. Agree who pays property tax, insurance, utilities and repairs until completion, and whether a sibling living in the house should pay occupation rent or carry those costs.
• A financing deadline. Set a date by which the buying sibling must have mortgage approval, and say what happens if they do not.

Put the result in a written agreement signed by the executor and all beneficiaries. It should cover the price, the adjustment to each person's share, the timing, who bears which costs, and releases once the transfer is complete.

Property transfer tax and other tax points

BC's Property Transfer Tax Act exempts some transfers from an estate. One exemption covers a transfer from an executor registered as trustee to a beneficiary who was a "related individual" of the deceased (which includes a child, and for this exemption means a Canadian citizen or permanent resident), where the land was the deceased's principal residence or recreational residence immediately before death, or had been the beneficiary's principal residence for at least six months.

Siblings, however, are not related individuals of each other under the Act. So if the house is first transferred to all the siblings and one later buys the others out, the exemptions for transfers between related individuals will not cover that second step. How tax applies when one beneficiary receives the whole house in exchange for a payment to the others depends on how the transaction is structured, so check it before the transfer documents are signed. Our overview of property transfer tax rates and exemptions explains the basics.

Income tax matters too. The estate's tax position, including any capital gain on the house, should be settled with the estate's accountant before the final distribution.

If siblings cannot agree

BC's Partition of Property Act gives co-owners of land a way out of a deadlock. Joint tenants, tenants in common and others interested in land can be compelled to partition or sell it, and the Act applies to equitable interests as well as registered ones. Under the Act:

• Majority request for sale. If those with a half interest or more ask for a sale, the court must order one unless it sees good reason not to.
• Undertaking to buy. If one co-owner asks for a sale, the others can undertake to buy that person's share instead, and the court may order a valuation.
• Bidding. On a court-ordered sale, the court may allow co-owners to bid.

While the house is still in the estate, the starting point is usually the executor's powers and duties rather than partition. Disputes about how an executor is handling the house can be raised through the estate process, and a court application is expensive and slow, so a negotiated buyout is usually worth a serious try first.

Want to keep the family home? Plan the buyout before the house is transferred

Our probate and estate lawyers can review the will and the estate's position, explain the options for structuring a buyout, prepare the agreement between beneficiaries and coordinate the transfer with the conveyancing.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.