Garton & Harris

Estate planning solutions for country cottage owners

A lot of Canadian families enjoy the luxury of having a country cottage, and sometimes these cottages have been in their family for generations. When it comes to bequeathing that cottage to loved ones in an estate plan, however, you'll want to do it right in order to ensure that this beautiful property is protected for future generations.

When planning your estate to include the family cottage, there are a few things you will want to keep in mind. First, consider the capital gains costs of passing the property down to the next generation of your family. Let's say you purchased the cottage for $100,000 in 1971. That's when capital gains taxes would begin to toll. Now, the property is worth $2 million. This represents a capital gain of $1.9 million -- and it will create a high tax bill when the property is passed down to your children. This tax bill needs to be planned for, especially if the heir's financial situation is not such that he or she could afford to pay it.

Second, consider where your children live in relation to the cottage and whether they want to use and own the cottage. For example, what if your cottage is in British Columbia? One child lives in BC and is excited to use the cottage and spend money on its upkeep, but the other lives in Nova Scotia and doesn't ever plan to use it. It's is important to note whether all of your children will use the cottage equally. If not, then the child who does not plan to use it could force its sale.

If one child wants the cottage and the other child doesn't, then the estate planner will want to make sure that both children are somehow treated equally by the estate. Perhaps the other child will receive cash or other assets to balance out the first child's receipt of the cottage. If the estate's assets cannot support this kind of balance, then it may be necessary to take out a joint last-to-die life insurance policy to cover the difference. Regardless what solution is chosen, speaking with an estate planning lawyer beforehand can help British Columbia residents weigh their options and choose the most appropriate estate planning solution for their situations.

Source: Financial Post, "How to pass on the family cottage without destroying your family in the process," Ted Rechtshaffen, June 30, 2016

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