How I’m passing on my family cottage
The family cottage is meant to be a place filled with happiness and love. But passing it on to the next generation can be complicated. Here’s how Jeff Halpern and his family began planning the transfer of their family cottage the day they bought it.
Jeff Halpern says that buying a family cottage was always a dream of his. He imagined uninterrupted time with nature and his family, and it hasn’t disappointed. He calls his cottage on the shore of Lake Simcoe, an hour north of Toronto, his “place of happiness.”
They were a family of five when they bought it more than 20 years ago. But fast forward to today, his daughters have husbands and kids of their own, and cramming 12 people into a traditional bungalow-style cottage all at the same time is proving to have some challenges.
Halpern may not have envisioned the logistical problems of three generations sharing a single cottage, but he did foresee the financial issues that can present themselves when it passes to the next generation.
“I was concerned with the rise in the value of the cottage,” says Halpern, a Business Succession Planner with TD Wealth, “and the tax implications of death.”
Halpern is referring to the potential capital gains tax that would become due when the property passes on to his children. Often cottages and the land they sit on appreciate significantly over time, and if you don’t plan accordingly it could mean the next generation can’t afford to hold on to it.
Being a planner and tax professional, he knew that early planning was imperative, so he elected to place the cottage in a Trust. “When I completed the purchase, I instructed the lawyer to create a Trust for the property ownership, which would permit the property to be transferred to the children at the cost-base of the Trust.”
There are other ways to pass down the cottage efficiently, and Halpern offers up these considerations when you buy a cottage, anytime after your purchase, or in your estate plans.
At the time of purchase
Halpern chose to enact a Trust for his cottage. Through a Cottage Trust, parents might be able to transfer ownership of a cottage to other trustees, such as children or grandchildren. There are other types of Trusts as well that may aid in passing down the cottage. Halpern cautions that Trusts are complex and should be undertaken with good legal and professional guidance.
Without a Trust, cottage owners could add other names to the ownership of the cottage at the time of purchase, however this means that the cottage could be fair game for any of your children’s (and their spouse’s) creditors.
Purchasing life insurance to cover the capital gains tax when it comes due may also be an effective way to help ensure the cottage stays in the family.
Adding names to the cottage ownership down the road is a possibility, but you could trigger a “deemed disposition” of the property at fair market value. When there is a capital gain, a tax bill usually comes with it. In some cases, it may still be preferable to settle the taxes now, rather than watch the value — and tax liability — grow.
It’s also possible to sell your principal residence to a child who doesn’t own one, and then make your cottage your principal residence going forward. This way, says Halpern, the cottage can pass on tax-free when you die.
In your Will
Halpern suggests leaving a sum of cash to cover taxes as well as a period of maintenance and expenses. You can include a provision for your children to decide whether to opt in or opt out of cottage ownership, says Halpern, since plans change, children move, and some would maybe prefer a condo in Cabo San Lucas.
Halpern says that this year his family will try out a rotational schedule so that everyone has time and space to enjoy the cottage. He is also encouraging them to consider a co-ownership agreement to help them deal with future decisions involving the cottage, including disputes, cost sharing, death, divorce or potential sale.
DISCLAIMER: The information contained herein has been provided by TD Wealth and is for information purposes only. The information has been drawn from sources believed to be reliable. Graphs and charts are used for illustrative purposes only and do not reflect future values or future performance of any investment. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual’s objectives and risk tolerance.
TD Wealth represents the products and services offered by TD Waterhouse Canada Inc., TD Waterhouse Private Investment Counsel Inc., TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company).
All trademarks are the property of their respective owners.
® The TD logo and other trade-marks are the property of The Toronto-Dominion Bank.
MENTIONS JURIDIQUES : Les renseignements aux présentes ont été fournis par Gestion de patrimoine TD aux fins d’information seulement. Les renseignements proviennent de sources jugées fiables. Les graphiques et les tableaux sont utilisés à des fins d’illustration et ne reflètent pas des valeurs ou des rendements futurs. Ces renseignements ne fournissent pas de conseils financiers, juridiques, fiscaux ou de placement. Les stratégies fiscales, de placement ou de négociation devraient être étudiées en fonction des objectifs et de la tolérance au risque de chacun. Gestion de patrimoine TD représente les produits et services offerts par TD Waterhouse Canada Inc., Gestion privée TD Waterhouse Inc., Services bancaires privés, Gestion de patrimoine TD (offerts par La Banque Toronto-Dominion) et Services fiduciaires, Gestion de patrimoine TD (offerts par La Société Canada Trust). Toutes les marques de commerce appartiennent à leurs propriétaires respectifs.
ᴹᴰ Le logo TD et les autres marques de commerce sont la propriété de La Banque Toronto-Dominion.
免責聲明：本文內之陳述由道明財富 (TD Wealth) 提供，僅供資料說明之用。本文根據相信為可靠的資料匯編而成。圖表僅供解說之用，並不反映任何投資的未來 價值或未來回報。本文資料並不旨在提供財務、法律、稅務或投資建議，衡量個別投資、交易或稅務策略時，應考慮個別人士的目標和風險承受能力。道明財富、道明銀行 (The Toronto-Dominion Bank) 與其聯屬及相關實體對任何資料錯漏或導致的損失或傷害概不負責。道明財富是代表由道明宏達理財加拿大有限公司 (TD Waterhouse Canada Inc.)、道明宏達理財私人全權託管投資有限公司 (TD Waterhouse Private Investment Counsel Inc.) 以及透過道明銀行提供之道明財富 私人銀行 (TD Wealth Private Banking) 和透過加拿大信託公司 (The Canada Trust Company) 提供之道明財富私人信託 (TD Wealth Private Trust) 所提供的 產品與服務。TD Waterhouse Canada Inc. － Member of the Canadian Investor Protection Fund。
® 道明 (TD) 標誌和其他商標是道明銀行的產權。
免责声明：本文内之陈述由道明财富 (TD Wealth) 提供，仅供资料说明之用。本文根据相信为可靠的资料汇编而成。图表仅供解说之用，并不反映任何投资的未来 价值或未来回报。本文资料并不旨在提供财务、法律、税务或投资建议，衡量个别投资、交易或税务策略时，应考虑个别人士的目标和风险承受能力。道明财富、道明 银行 (The Toronto-Dominion Bank) 与其联属机构及相关实体对本文中任何资料错漏或导致的损失或伤害概不负责。道明财富是代表由道明宏达理财加拿大有限公司 (TD Waterhouse Canada Inc.)、道明宏达理财私人全权托管投资有限公司 (TD Waterhouse Private Investment Counsel Inc.)、以及透过道明银行提供之道明财富私人 银行 (TD Wealth Private Banking) 和透过加拿大信托公司 (The Canada Trust Company) 提供之道明财富私人信托 (TD Wealth Private Trust) 所提供的产品与 服务。TD Waterhouse Canada Inc. — Member of the Canadian Investor Protection Fund。
® 道明 (TD) 标志和其他商标是道明银行的产权。