Hi everyone, I’m Sabrina, a Wills and Estates lawyer at Varity Law. When doing estate planning, we always tell our clients that while you can give your assets to your children, they cannot inherit your debts. For example, you can leave your house to them, but the attached mortgage is not yours to give. Unfortunately, this means that within 15 days of your passing, the bank has the legal right to demand that your estate immediately pay back all outstanding mortgage (they call this “acceleration of payments” on your mortgage agreement/commitment). Nevertheless, most banks will be humane enough to wait for approximately 6 months to one year before selling your estate property to pay back the rest of the mortgage, thus giving your children a chance to either apply for a new mortgage or sell the property (that is, after the probate application is granted – learn more about Probate Application in Ontario).
For this reason, we highly recommend that clients pay off all their debts within their lifetime, if possible. Today, a client asked me whether an unused line of credit attached to their house is considered a “debt”. The short answer is that it is not a debt, as long as you have documents to prove that it is unused. The problem with a line of credit is that the highest limit is registered on your house as a debt. For example, let’s say the maximum amount of money you can take out from this line of credit is $400,000. Then the bank would consider the worst-case scenario: you took out the entire amount and used it up. To protect their interest, the bank would register a $400,000 loan against your property.
Not to worry, as long as you have your bank statement showing there is $0.00 owing upon your passing, then your children doesn’t need to pay back a cent. They can close down the line of credit, and the bank cannot start the power of sale to seize the house.
The problem is that the registered debt of $400,000 is the “public document” any lawyer can look up. Whereas your bank statement showing $0.00 owing is the “private document” between you and the bank and kept thus secret. So, you want to ensure that the executor (manager) of your estate will have access to your most recent bank statements at all times (for more info on estate administration).
For that reason, any clients who use our office to create their Wills will receive a complimentary asset list. We even update this list for free for up to 25 years. You can attach your line of credit bank statement to your asset list and update it every year. You also don’t need to show us the statement if you want to keep it private. You just need to ensure that your executor will have access to it when you pass.
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