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Practical Financial Solutions — Speaking of the cottage

By Contributor
May 6th, 2015

Your family has always had a great time at your cottage so it’s natural to assume you’ll be handing it off to your family after you’re gone. But if you don’t ask your adult children what they really want and plan for the tax consequences that may not happen.

Here are a few essential cottage succession planning steps you should take.
Speak of the cottage:  Talk to your adult children now and find out who wants to take on the responsibilities and who doesn’t. Then avoid future family squabbles by making arrangements so your non-cottage inheritors will be treated fairly in your will.
Protect the cottage: Unless you’re passing assets to a spouse, when you die you are deemed to have disposed of your capital assets at fair market value – meaning if your cottage property has appreciated in value, your estate will face a significant capital gains tax liability. You do have the benefit of a principal residence tax exemption but you can apply it to just one property at a time and that can be either your cottage or your city home but the one you don’t choose will be subject to tax on its increased value.
There will be tax consequences if your leave the property to your children in your will – so make sure there will be sufficient funds in your estate to pay any tax liabilities. Life insurance can be a good strategy for covering the capital gains on your cottage.

The death benefits are usually tax-free and can be used as a ready source of cash to avoid a forced sale, to pay capital gains taxes, or to equalize your estate among cottage inheritors and non-cottage inheritors.  

Trying to escape paying tax by transferring your cottage to your children during your lifetime won’t work. It will trigger an immediate capital gain at the ‘fair market value’ of the property. And if you sell your children your cottage at less than ‘fair market value’ you will still have to pay tax on the real price but your children will be deemed to have paid the lower price resulting in double taxation when they sell the cottage. 

The only advantage of transferring part or complete ownership during your lifetime is that the amount of the gain taxable in your hands is ‘capped’ at the time of the gift or sale.
It’s a good idea to plan now for the succession of your cottage – and the rest of your estate, for that matter. Your professional and legal advisors can help you work through the options that are best for you.

This column is sponsored by Roger Higgins, a BA, CFP Division Director for Investors Group in the Kootenays. For all your financial planning needs, contact Roger at 250-352-7777 of email at

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