Building your Financial Success in the City of Greater tario   Trilliums in Northern Ontario
Northern Ontario



Building your Financial Success
With Alain Aube

Estate Planning

When cottage life passes you by - what then?

You could count on it. As the days lengthened and the weather warmed, your children would ask ever more frequently, "Is it time yet to leave for the cottage? Is it? Is it?"

But, that was years ago. Their lives have changed and so has yours. This summer, as you sit on the dock enjoying another in a seemingly endless procession of gorgeous sunsets, those changes may have you contemplating that final sunset - the day you decide to end your weekend excursions or extended summer stays at your vacation property. If so, you're probably wondering what to do with your cottage or cabin. To help give some direction to your thoughts, here are a few questions you should address.

Should I give the cottage to the kids? It's natural to want to keep a place of warm memories and happy times in the family. Yet, it's also a mistake to assume all your adult children will automatically enjoy flocking to a cottage they now own.

As you've undoubtedly discovered, owning and maintaining a vacation property is a big responsibility - and your children may not want to take on that responsibility. That's why it's essential that you talk with them to see whether any of your children want a future ownership share.

If you don't ask them, here's what could happen: Let's say you bequeath an equal share of your cottage to each of your three children, but two of them have no desire to share in the ownership and want to sell the property. Your third child would like to retain ownership and use of the property, but lacks the capital to buy the others out. The result? Your good intentions go for nothing because the majority rules, the property is sold and your third child is disappointed.

One way to avoid disputes is to bequeath the property to the child who wants it, and bequeath other estate assets to your other two children. If estate equalization becomes an issue, permanent life insurance may be the solution.

Are there tax implications if I bequeath the property to my children? Yes, and potentially steep ones. If you are using your principal residence exemption on your home and your vacation property has appreciated in value, there could be a significant capital gains tax liability upon your death. Unless you are passing assets to your spouse, when you die you're considered to have disposed of all your capital assets at fair market value - and that includes your cottage.

Can I protect my beneficiaries from excessive taxation or other estate debts?
There are a number of ways you can cover or reduce capital gains taxes and other estate debts (such as any remaining mortgage amount on your cottage). Permanent life insurance is an ideal option. It can provide a ready source of cash that will allow your executor to deal with estate debts and pay taxes, including those on your vacation property, without having to sell assets to raise the necessary money to cover these expenses.

You could also choose to transfer some or all of your property during your lifetime. Gifting the property to your children, or making one or more of them joint owners, creates a disposition for tax purposes. While either strategy could trigger an immediate capital gain, future gains will accrue to the new owners.

Whatever your decision about your vacation property, it should fit into your overall estate plan. That's why it's a good idea to seek the advice of a financial planner in mapping out the best cottage succession plan for your situation.



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