How can I pass on the family cottage to my children?

Passing on the family cottage is an important issue that a lot of Canadian families struggle with when planning their estates. A lot of questions arise around this topic, like:

-- Will my children be able to afford the capital gains taxes on the property?

-- Should I gift the cottage over to my children before I pass away?

-- Is trust planning useful in transferring ownership of a cottage?

First and foremost, the unfortunate reality regarding the transfer of a cottage property to children is the fact that -- especially if the cottage has been in the family for a long time -- the children will probably incur stiff capital gains taxes that will need to be paid when the property is transferred into their names. Parents need to keep this fact in mind and consider bequeathing additional funds to the child or children in the will to ensure that this tax bill can easily be paid.

Second, parents may be able to save on taxes by gifting the property to their children while they are still alive. The gift can be transferred over a period of five years, incrementally in order to keep the annual tax bill from being too high, and to prevent an elevated income that results in government clawbacks on Old Age Security and other benefits. In order to plan this kind of transfer, parents will want to discuss the matter with an experienced estate planning and tax planning lawyer.

Third, through strategic trust planning, parents can place the ownership of the cottage under the control of a trust, and via the trust provide each of the cottage heirs with partial ownership of the trust. In addition, the trust can be planned to include additional funds to be used to maintain the cottage. The trust will also protect the property from bankruptcy, liens, divorce and other disputes.

Canadian parents in Vancouver and other parts of the country have a lot of options when it comes to transferring ownership of the family cottage. An estate planning lawyer will be able to assist families in thoroughly reviewing each of those options to determine which one is best for them.

Source: MoneySense, "4 ways to pass on the family cottage," Romana King, Sep. 02, 2016

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