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Digital Subscriptions > Cottage Life > EARLY Summer 2018 > HAVE YOU HAD THE TALK?



It’s not an easy topic to discuss.

■ But figuring out a succession plan now will help you and your family later.

Here are some smart strategies for handing down the cottage to your kids.

You want to keep the peace and save some money, don’t you?

Photography Grant Harder

Nothing is sure but death and taxes.

Ben Franklin said it centuries ago, but it’s never been more relevant than now for the aging cohort of cottagers preparing to transfer ownership to the next generation.

“If you’ve got time and some creativity, and you are dealing with advisors who have done it before, then it’s straightforward,” says Jamie Golombek, the managing director, tax and estate planning with CIBC Financial Planning and Advice. “The problem is if you haven’t done any planning, and someone dies, then there’s a tax bill to pay right away. Where’s the money going to come from?”

Where indeed? But finding the money for taxes is only one part of a sound succession strategy. With planning, you can also ensure that the cottage stays in the family and that it goes to the children who really want it. You can lessen the capital gains tax hit or even postpone it for generations. You can reduce or avoid costs such as the estate administration tax (also known as probate fees). And you can protect the cottage from financial or marital claims, a concern that’s top of mind for many parents. Finally, and perhaps most important, you can put a cottage sharing agreement in place that provides a framework for solving multi-owner conflicts.

Where to start? The good news is that there’s at least one neat, novel trust technique for keeping the cottage in the family (see “Save Your Money,” on p. 90). But hold that thought. To understand the benefit of planning, you first need to understand all the ugly issues around cottage succession, because the best option may be a combination of strategies. Ready? Here we go.

ISSUE #1 The federal capital gains tax (CGT) liability

This is the biggie, and a primary reason cottages are sold out of families. The reality is that many families own valuable properties not because they’re wealthy, but because they’re lucky. Some adventurous soul bought a plot of land and built a cottage. It’s been handed down, possibly for generations, without a significant capital gain—until recently, when the value of waterfront property skyrocketed. When the kids inherit the beloved cottage, their only option may be to sell it in order to pay the tax.

There is no way to avoid paying capital gains tax entirely. Even if you gift the cottage to your kids, the government views it as having been sold at fair market value—a deemed disposition. You or your estate will pay tax on the difference between that value and the adjusted cost base (ACB), which is the value of the cottage when you purchased it, plus any expenses you incurred for capital improvements, such as a renovation or a septic system. We heard of one cottager who had kept receipts for $360,000 worth of improvements over the years, significantly increasing the Acb—and reducing the tax liability for his estate when he died.

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About Cottage Life

Love is in the air—and in the pages of the Early Summer issue of Cottage Life. Our readers’ sweetest (and silliest) romance stories from the lake Inspiring design ideas from three cozy little love shacks Tips for getting along with your neighbours The inside scoop on the (surprisingly frisky!) cottage critter dating scene Our essential guide to keeping the cottage in the family An easy, casual tostada feast to feed all your loved ones—even the ones with dietary restrictions Summer projects to show your love: a bee box for troubled pollinators, a nature-inspired centrepiece for a cottage wedding, and a dock staircase that’s good for Grandpa, kids, and pets The inspiring story of a cottager who, at 22, brought the struggling lakeside store of her childhood back to life Intel on the new tribunal that’s replacing the OMB and how cottagers can help steer their lake’s development Pick up the Early Summer 2018 of issue of Cottage Life for tips and ideas to make this your best season yet.