Friday, May 29th16.5°C
26329

Say goodbye to family cottage before its too late: financial advisors weigh in

TORONTO - After the unforgettable family gatherings, sunbathing on the dock and picture-perfect moments with the kids, it's hard to say goodbye to the cottage you've grown to love.

But financial advisors say that learning when to let go is a fundamental part of ensuring that your lakefront property doesn't become a bad investment.

"There's the romance of it, and there's the reality," said Jason Pereira, a senior financial consultant at Investment Planning Counsel in Toronto.

"The cottage is a place where you escape, but there's also its own series of responsibilities."

For cottage dwellers, that day is inevitable. Eventually you will face the dilemma of either selling the property or passing it down to your children, if you have them.

Neither option is easy and, in many cases, comes down to choosing the best time for the transition which, for tax purposes, will likely be after retirement when your annual income drops.

Financial advisors say one of the biggest mistakes cottage owners make is assuming that somebody else in the family actually loves the place as much as they do.

"A lot of people are quite preoccupied with keeping the property in the family, for some reason," said Christine Van Cauwenberghe, assistant vice president of tax and estate planning at Investors Group.

"People need to look at selling the cottage as a very viable solution."

Several advisors said they've seen instances where transitioning the ownership of the property created powerful rifts within the family. They suggest that cottage owners take a step back and ask themselves whether a few days at the beach should come at the expense of potentially destroying family relationships or shifting a financial burden onto their children's shoulders.

"Often you'll have two kids, and one will be financially successful and one will be not as financially successful," said Greg Rasmussen, an investment advisor at Manulife Financial in Muskoka, Ont., a popular cottage region.

"As soon as you transfer it into their name you're going to have that tax bill."

If one child can't afford the cottage, but the family insists on keeping it, then make special arrangements that are in writing. A promissory note can clearly outline the long-term financial expectations.

"Make sure that child is paying fair market value," Cauwenberghe said.

"Maybe it's not in cash, but in receiving that much less of the estate."

Even in a smooth transition of ownership, there's still years of potential fights ahead as siblings get saddled with the expenses of regular upkeep, taxes, and figuring out a way to share the property without bickering over whose family gets the place each weekend.

That's why advisors suggest that, unlike jewelry or silverware, a cottage shouldn't be treated like a family heirloom because it's not the kind of asset you can store in a drawer and forget about.

"A lot of people can't afford — even on a divided basis — to run them," said Tony Layton, chief executive of financial services company PWL Capital.

He said he's seen instances where children will gain possession of a cottage, but don't have time to maintain the property and let it fall into "semi-ruin."

Eventually those children can be forced to sell the cottage and — depending on how much the value has appreciated over the years — can be hit with a massive tax bill they can't afford.

In other instances, one child might want to sell the property while other others do not, which can lead to further problems if those situations aren't laid out in writing.

"If anything, you should have agreements in place that say: 'You can buy me out or I can force the sale,'" said Pereira.

"There almost has to be a prenup in place for the cottage to avoid those hazards down the road."

Cash proceeds are easier to divide amongst a group because its a relatively clear-cut process that involves more numbers and less emotion.

The Canadian Press


Read more Business News

24910


Recent Trending




Today's Market
S&P TSX15014.09-92.89
S&P CDNX692.45+0.29
DJIA18010.68-115.44
Nasdaq5070.03-27.95
S&P 5002107.39-13.40
CDN Dollar0.8029-0.0017
Gold1204.30+1.50
Oil60.86+2.49
Lumber273.40+0.90
Natural Gas2.83+0.01

 
Okanagan Companies
Pacific Safety0.14+0.01
Knighthawk0.010.00
QHR Technologies Inc1.46-0.02
Cantex0.03+0.00
Anavex Life Sciences0.40+0.00
Metalex Ventures0.07-0.01
Russel Metals25.07-0.13
Copper Mountain Mining1.27-0.03
Colorado Resources0.10+0.00
ReliaBrand Inc0.022+0.009
Sunrise Resources Ltd0.04+0.01
Mission Ready Services0.16+0.01
Decisive Dividend Corporation2.28+0.18

 



26407

FEATURED Property
16746994800 Lakeshore Road
6 bedrooms 8 baths
$13,995,000
more details
image2image2image2
Click here to feature your property
Please wait... loading


Yard sale pricing

Photo: Thinkstock.comI have deliberately abridged this household tips article to illustrate pricing strategies. "Tips For Pricing Yard Sale Items” was written by Lynnette Walczak, and publi...


What's a robo-advisor?

Photo: ContributedIt can only be attributable to human error. -Hal, 2001: A Space Odyssey For most of us who are within thinking distance of retirement, the term “robo” conjures up image...


Cash stressed seniors

Photo: Thinkstock.comFor many Canadian homeowners, their house represents the biggest portion of their net worth. Now, increasing numbers of seniors are starting to recognize the hidden value of their...

_



25217

25217


Member of BC Press Council


24697