Oh, those lazy days of summer spent at the family cottage. It’s the stuff fond summer memories are made of. However because of those strong emotional ties that many of us have to our family cottage, estate planning around the cottage can present a challenge.
What options are there when considering what to do with the family cottage? Should it be passed to the next generation or sold and the money shared? If the plan is to ensure the family cottage remains in the family, some ways to accomplish this could include:
• retaining complete ownership of the cottage while you are alive and directing that it be transferred to some or all of your children upon your death;
• sharing ownership of the cottage while you are alive with one or more of your children, either as joint tenants or tenants-in-common (what happens on death is very different for these two forms of ownership);
• selling the cottage to one or more of your children at its fair market value or some other agreed-upon price; or,
• gifting the cottage outright to your children while you are alive but retaining a ‘life interest’ (the right to use it while you are alive).
The best option for any particular family will depend upon a number of things such as the parents’ estate planning goals, the children’s expectations and financial situations, and the capital gains tax which may be owing. It is important to give the various options some thought and, if possible, discuss the options with the next generation before making a decision.
Whatever is ultimately done with the family cottage, for tax purposes the outcome will remain the same — capital gains tax will be owing unless the cottage has gone down in value or the cottage is your only residence (in which case, it may be exempt from capital gains tax for some or all of the time that you owned it). Advance planning can help you and your family anticipate and plan for the capital gains tax burden.
It is also very important to talk with professionals early in the process so that you have a good understanding of the tax implications and other issues. Professionals such as a tax accountant, a financial planner and a lawyer specialized in estate planning can provide key pieces of the puzzle and make the decision easier and more workable for everyone.
Do you own a family cottage and aren’t sure what to do? Call 613.836.9915 or email firstname.lastname@example.org to make an appointment to meet with me. We will review your family’s unique situation and estate planning goals and discuss your various options.
Reproduction of this blog is permitted if the author is credited. If you have questions or if you would like more information, please call us at 613 836-9915. This blog is not intended to be legal advice but contains general information. Please consult a lawyer or other professional to determine how the information in this blog might apply to you.
Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.