Real estate appraisal as part of estate planning is an essential process to determine the fair value of properties for transmission. It ensures not only an equitable distribution of assets among heirs but also optimizes tax aspects and reduces the risk of disputes.
Here’s everything you need to know about real estate appraisal in the context of estate planning in Quebec.
What Is Estate Planning?
Estate planning involves organizing in advance the transfer of a person’s property and assets to their heirs or beneficiaries after their death. Its goal is to optimize this transfer from a tax perspective, respect the wishes of the testator, and prevent family conflicts.
A central aspect of this planning is the valuation of assets, including real estate, which often represents a significant part of the inheritance.
Why Appraise Your House Before Succession?
In preparation for succession, real estate appraisal allows you to:
- Determine the value of real estate: Ensures a fair and equitable distribution of assets among heirs.
- Optimize taxation: By knowing the exact value of properties, it is possible to better anticipate taxes, such as capital gains tax and inheritance duties.
- Avoid family disputes: An impartial expert appraisal helps prevent tensions related to asset distribution.
- Simplify the estate settlement process: At the time of death, the fair value of properties will already be known, facilitating the executor’s task.
- Plan the sale or retention of inheritance properties: If some heirs wish to keep a property and others want to sell, the appraisal enables informed decisions.
When Should You Appraise a Property for Succession?
It is recommended to appraise your properties before drafting or revising a will, especially if the assets are numerous or complex. Appraisal is also necessary at the time of death to establish the value of properties at that specific date, which will be used to calculate payable taxes.
We also advise reassessing real estate during significant family changes (divorce, death of a close one) or if the real estate market has fluctuated significantly. A recent appraisal helps avoid tax surprises or misunderstandings among heirs.
Who Can Perform the Appraisal?
The appraisal of a house for succession must be conducted by a certified appraiser, a member of the Order of Certified Appraisers of Quebec (OEAQ). This expert has the necessary skills and impartiality to determine the market value of properties.
How Does a Real Estate Appraisal for Succession Work?
The process is similar to a standard appraisal but considers the specific context of succession. It involves several steps:
- Property visit: The appraiser inspects the property to analyze its condition, features, and surroundings.
- Data collection: The appraiser consults recent data on the real estate market and comparable transactions in the area.
- Analysis: Various valuation methods are used to determine the most accurate possible value (comparison method, cost method, or income method).
- Appraisal report: The appraiser provides a comprehensive report including a detailed property description, the comparables used, the valuation method, and the final estimated value.
Different Real Estate Valuation Methods
A certified appraiser can determine the value of a property in estate planning using one of these methods:
- Direct comparison method: Compares the property to similar properties recently sold in the same area.
- Cost method: Assesses the property’s value considering replacement or reconstruction costs minus depreciation.
- Income method: Particularly applicable to income properties, estimating value based on the income the property can generate.
Appraising Other Assets in a Succession
Besides real estate, it may be necessary to appraise other types of assets in a succession, such as:
- Shares and financial investments: Their value may fluctuate and must be precisely calculated at the date of death.
- Artworks, jewelry, and valuable items: Specialized experts can be consulted for these specific appraisals.
- Businesses or shares in companies: Valuation of corporate shares or business value is often required.
Taxation and Succession in Quebec
When transferring inheritance real estate, several tax aspects must be considered:
- Capital gains tax: In Quebec, selling a house in a succession is subject to tax, except for the principal residence. The capital gain corresponds to the difference between the property value at the time of death and the purchase price. Half of this gain is taxable.
- Transfer duties: If a property is transferred to an heir, transfer duties (or welcome tax) may apply, except in certain exemptions (e.g., transfer between spouses).
- Inheritance tax: While there are no specific inheritance taxes in Quebec, federal estate taxes may apply depending on the assets held.
How Much Does an Estate Planning Appraisal Cost?
The cost of an appraisal depends on several factors, including the size and complexity of the property to be appraised. For a typical residence, the cost generally ranges from $300 to $700. This amount may increase for commercial, industrial, or complex properties.
While this cost may seem high, it is an essential investment to avoid legal or tax issues in the long term.
Plan a Smooth and Equitable Succession with Appraisal
Real estate appraisal as part of estate planning is a crucial process to ensure a smooth and equitable transfer of assets among heirs. It not only determines the exact value of the properties to be transferred but also optimizes taxation and prevents family conflicts.
The involvement of a certified appraiser ensures an impartial valuation that meets legal requirements, thereby facilitating estate management for the executor.
Do you have questions about estate planning and its tax implications? Speak with one of our tax accountants to learn more.
