Inheriting property creates immediate financial obligations—estate debts, property taxes, maintenance costs, legal fees—often before you can access the inherited assets. Estate settlement financing provides capital during probate, allowing executors and heirs to manage obligations without forced property sales or personal financial strain.
This guide covers financing options for inherited properties in Ontario, how to access equity during probate, and what executors need to know about their authority and liability when arranging estate financing.
The Estate Settlement Cash Flow Problem
Probate in Ontario takes 6-18 months on average. Complex estates, contested wills, or properties in multiple jurisdictions can extend timelines further. During this period, financial obligations continue accumulating while estate assets remain largely inaccessible.
Immediate Obligations
Estate debts: The deceased's outstanding debts—credit cards, lines of credit, personal loans—become estate obligations. Creditors don't pause collection efforts during probate.
Funeral and burial costs: These expenses arise immediately, often before any estate funds are accessible. Families frequently pay out-of-pocket with expectation of estate reimbursement.
Legal and probate fees: Executor compensation, legal representation, court filing fees, and Estate Administration Tax (probate fees in Ontario: 1.5% of estate value above $50,000) require payment.
Property carrying costs: Inherited real estate needs ongoing maintenance:
- Property taxes (continue accruing regardless of ownership transition)
- Insurance (coverage must continue; policies often require updating for vacant properties)
- Utilities and heating (especially critical in Ontario winters to prevent damage)
- Lawn care, snow removal, basic maintenance
- Mortgage payments if the deceased had existing financing
The Liquidity Gap
Bank accounts may be frozen pending probate. Investment accounts require estate documentation for access. The primary estate asset—often the family home—can't be sold until probate completes and title transfers.
Executors and heirs face a gap: obligations are immediate, but asset liquidity is months away. This gap creates the need for estate settlement financing.
Financing Options for Inherited Properties
Several financing approaches can bridge the estate settlement period. The right choice depends on the estate's complexity, timeline expectations, and the executor's authority.
Estate-Backed Loans
An estate-backed loan uses inherited property as collateral to provide immediate capital for estate settlement. The loan is secured against the property and repaid when the estate closes—either through property sale or refinancing by heirs who retain ownership.
How it works:
- Executor or heir applies for financing, providing estate documentation
- Lender appraises the inherited property
- Loan advances based on property equity (typically 60-75% LTV)
- Funds cover estate obligations during probate
- Loan repays when property sells or heirs refinance
Best for: Estates with significant property equity where heirs haven't yet decided whether to keep or sell. Provides flexibility while probate completes.
Inheritance Advances
An inheritance advance provides heirs with immediate access to a portion of their expected inheritance. The advance company purchases part of the heir's future inheritance at a discount, providing cash now in exchange for a larger payment when the estate settles.
How it works:
- Heir applies showing their entitlement under the will
- Advance company evaluates estate value and settlement timeline
- Heir receives immediate cash (typically 50-70% of expected share)
- When estate settles, advance company receives the full inheritance share they purchased
Best for: Individual heirs who need personal funds and are willing to accept a discount on their inheritance for immediate liquidity. Does not require executor involvement or property as collateral.
Important consideration: Inheritance advances can be expensive. If you expect to inherit $100,000 and receive a $60,000 advance, you're effectively paying $40,000 for access to funds 6-12 months early. Evaluate whether the cost is justified by your circumstances.
Private Mortgages on Inherited Property
A private mortgage registered against inherited property provides capital for any purpose—estate settlement, property renovation, or personal needs of heirs. This works best after probate completes and title transfers to heirs.
How it works:
- Title transfers to heir(s) after probate
- Heir applies for private mortgage against their new property
- Lender evaluates property value and heir's repayment ability
- Mortgage registers against title; funds advance
- Heir makes payments or repays when property sells/refinances
Best for: Post-probate situations where heirs have clear title and want to access property equity without selling.
Bridge Financing for Estate Sales
When heirs plan to sell inherited property, bridge financing can cover estate obligations until the sale closes. The bridge loan is short-term (3-12 months), repaid from sale proceeds.
How it works:
- Decision made to sell inherited property
- Bridge loan provides immediate capital for estate obligations
- Property listed and sold
- Bridge loan repays from sale proceeds at closing
Best for: Estates where property sale is certain and heirs need capital to manage obligations until closing.
Executor Authority and Liability
Executors arranging estate financing face unique considerations around their authority to borrow and their personal liability.
What Authority Do Executors Have?
The will itself may grant executors explicit borrowing authority. Review the will carefully—some specifically authorize mortgaging estate property; others are silent or restrictive.
If the will doesn't address borrowing, executors may need:
- Court approval for significant financing arrangements
- Consent from all beneficiaries
- Legal opinion on executor authority
Acting without proper authority can expose executors to personal liability. When in doubt, consult an estate lawyer before arranging financing.
Personal Liability Considerations
Executors who personally guarantee estate financing become personally responsible if the estate can't repay. Before signing any personal guarantee:
- Understand exactly what you're guaranteeing
- Evaluate estate assets against the debt
- Consider whether other options exist that don't require personal guarantee
- Consult your own legal advisor (not just the estate's lawyer)
Some lenders offer non-recourse estate financing—loans secured only by estate assets, with no personal guarantee. These typically carry higher rates but protect executors from personal exposure.
Documentation Lenders Require
Estate financing applications typically require:
| Document | Purpose |
|---|---|
| Death certificate | Confirms the passing |
| Will or Letters Probate | Confirms executor authority |
| Estate inventory | Shows total assets and debts |
| Property appraisal | Establishes collateral value |
| Beneficiary consents | May be required depending on financing type |
| Executor ID and personal information | For application processing |
Gather documentation early. Estate financing moves faster when paperwork is complete.
Tax Implications of Estate Financing
Estate financing has tax consequences that affect both the estate and heirs. Understanding these helps avoid surprises.
Capital Gains on Inherited Property
In Canada, inherited property is deemed disposed at fair market value on the date of death. The estate (not heirs) is responsible for any capital gains tax on appreciation during the deceased's ownership.
Exception: The principal residence exemption may eliminate capital gains if the property was the deceased's primary home and qualifies under CRA rules.
When heirs eventually sell the inherited property, they calculate capital gains from the deemed disposition value (stepped-up basis) on the date of death, not the original purchase price.
Interest Deductibility
Interest paid on estate financing may be tax-deductible for the estate if the borrowed funds are used for estate administration purposes. Interest for personal use by heirs is typically not deductible.
The estate's accountant should review financing plans to maximize any available deductions and properly account for interest expenses in estate tax filings.
Probate Fees in Ontario
Ontario's Estate Administration Tax is calculated on the total estate value:
- First $50,000: No tax
- Over $50,000: 1.5% of estate value
On a $700,000 estate: ($700,000 - $50,000) × 1.5% = $9,750 in probate fees. These fees are immediate obligations that financing can help cover.
Maintaining Property During Probate
Executors have a duty to preserve estate assets. For inherited real estate, this means maintaining the property throughout probate.
Essential Maintenance Requirements
Insurance: Standard homeowner policies often require notification of vacancy or change in occupancy. Failure to update the policy can void coverage. Vacant property insurance costs more but protects the estate from liability.
Utilities: Heat must continue in Ontario winters to prevent pipe freezing and water damage. Even unoccupied homes need minimum heating and periodic checks.
Property taxes: These continue accruing. Late payment can result in penalties and potentially tax sale proceedings if extended non-payment occurs.
Lawn care and snow removal: Municipal bylaws often require basic property maintenance. Neglected properties can result in fines and liens against the estate.
Cost Planning
Budget for 12-18 months of carrying costs when planning estate financing needs:
| Expense | Monthly Cost (Typical) | 12-Month Total |
|---|---|---|
| Property taxes | $300-$600 | $3,600-$7,200 |
| Insurance (vacant) | $200-$400 | $2,400-$4,800 |
| Utilities | $150-$300 | $1,800-$3,600 |
| Maintenance | $100-$300 | $1,200-$3,600 |
| Total | $750-$1,600 | $9,000-$19,200 |
These costs continue regardless of probate timeline. Calculate available equity to determine financing capacity for these obligations.
Working with Professionals
Estate financing involves multiple specialties. Assemble the right team early.
Estate Lawyer
The estate lawyer guides the probate process and advises on executor authority. They handle:
- Probate application and court filings
- Interpretation of will provisions
- Executor authority for borrowing
- Beneficiary communications
- Resolution of any estate disputes
Before arranging financing, confirm with your estate lawyer that:
- The executor has authority to borrow
- The proposed financing doesn't conflict with will terms
- Any required consents have been obtained
- The financing structure is appropriate for the estate situation
Mortgage Professional
For estate-backed loans and private mortgages, work with a mortgage broker experienced in estate situations. They should:
- Understand executor authority limitations
- Know lenders who finance estate properties
- Navigate documentation requirements
- Structure appropriate terms for estate timelines
Estate financing is specialized. Not all mortgage brokers have experience with these situations.
Accountant
The estate's accountant addresses:
- Final tax returns for the deceased
- Estate tax filings
- Capital gains calculations
- Tax treatment of financing costs
- Distribution tax implications for heirs
Involve the accountant before finalizing financing to understand tax consequences.
Real Estate Agent
If the property will be sold, engage an agent experienced in estate sales:
- Understanding of estate sale disclosures
- Experience with executor decision-making processes
- Realistic pricing given property condition
- Timeline management coordinating with probate
How Much Can You Borrow Against Inherited Property?
Borrowing limits depend on property value, existing debts, and the financing type.
Typical Loan-to-Value Limits
| Financing Type | Typical LTV |
|---|---|
| Estate-backed loan (during probate) | 60-70% |
| Private mortgage (post-probate) | 70-80% |
| Bridge financing | 65-75% |
Example Calculation
Property value: $700,000
Existing mortgage: $150,000
Available equity: $550,000
Maximum estate loan (65% LTV): $455,000
Less existing mortgage payoff: $150,000
Net available to estate: $305,000
This provides substantial capital for estate obligations while retaining equity cushion.
Cost Considerations
Estate financing rates typically run higher than conventional mortgages due to complexity and shorter terms:
| Component | Typical Range |
|---|---|
| Interest rate | 9-14% annually |
| Lender/arrangement fee | 1.5-3% of loan |
| Legal fees | $2,000-$4,000 |
| Appraisal | $400-$600 |
Example: $200,000 estate loan at 11% interest, 2% lender fee, held for 12 months:
- Interest: $22,000
- Lender fee: $4,000
- Legal and closing: $3,000
- Total cost: $29,000
Compare this cost against alternatives: personal funds depletion, forced quick sale of property, or estate debts accumulating penalties and interest.
When Estate Financing Makes Sense
Estate financing is appropriate when:
Probate timeline is extended. If settlement will take 12+ months and obligations continue accumulating, financing prevents worse outcomes.
Property equity is substantial. Financing secured by property with significant equity carries less risk than unsecured borrowing.
Alternative costs are higher. Quick forced sales often yield 10-15% below market value. If financing costs less than the discount on a rushed sale, it's worth considering.
Heirs want to keep the property. If the plan is to retain ownership, estate financing provides time to arrange permanent financing without sale pressure.
Cash flow obligations can't wait. Property taxes, insurance, and mortgage payments don't pause for probate. Financing prevents defaults that could create larger problems.
When to Consider Alternatives
Estate financing isn't always the best path:
Property equity is minimal. If borrowing capacity is limited, financing costs may not be justified.
Quick sale is feasible. In strong markets, properties sell quickly at good prices. Financing may be unnecessary if sale can close promptly.
Estate disputes exist. Unresolved beneficiary conflicts complicate financing and may require court resolution before proceeds can be used.
Personal funds are available. If heirs can cover short-term obligations and will be reimbursed from estate, personal advances may be simpler than formal financing.
Frequently Asked Questions
Can I get a loan against an inheritance before probate?
Yes, through inheritance advances or estate-backed loans. Inheritance advances provide individual heirs with immediate cash against their expected share, typically at significant discount (receiving 50-70% of expected value). Estate-backed loans use inherited property as collateral during probate, providing funds for estate settlement. Both options work before probate completes, though they require different documentation and have different cost structures.
How do executors pay estate debts before probate is complete?
Executors have several options: using any liquid assets (bank accounts, if accessible); advancing personal funds for reimbursement from the estate; arranging estate-backed financing against property equity; or negotiating payment deferrals with creditors. The appropriate approach depends on estate liquidity, executor authority under the will, and the nature of obligations. Significant borrowing typically requires clear executor authority and potentially beneficiary consent.
What is an inheritance advance?
An inheritance advance provides heirs with immediate cash in exchange for assigning part of their future inheritance to the advance company. Unlike a loan, advances don't require repayment by the heir—the advance company collects directly from the estate when it settles. The cost comes through the discount: receiving $60,000 now for a $100,000 inheritance means paying $40,000 for early access. Advances work for individual heirs without requiring executor involvement or property collateral.
Can heirs get a mortgage on an inherited property?
Yes, once probate completes and title transfers to heirs. After title is in heirs' names, they can apply for mortgages like any property owner. During probate, estate-backed financing is possible but requires executor involvement and appropriate authority. Heirs receiving property should plan for any existing estate financing to be refinanced or repaid once they take title, as estate loans typically require settlement when probate closes.
How long does probate take in Ontario?
Simple estates with clear wills and no disputes typically take 6-12 months from application to completion. Complex estates—multiple properties, business interests, unclear provisions, or beneficiary disputes—can extend to 18 months or longer. Court backlogs affect timing. The probate application itself takes 6-12 weeks after filing if no issues arise. Plan for at least 6 months, budget for 12, and be prepared for longer if complications emerge.
