It's Your Money  

Leave emotion out of family cottage transfers

Keeping property in family

Memories of summers on the dock at the family cabin will be etched in your mind forever. But these strong bonds may also make it harder to talk about the future of that sacred vacation home.

A heart-to-heart family chat is a good place to start. Do your kids live close enough to regularly visit the cabin or are they only there once or twice a year? Are siblings ready to share both the enjoyment and work of looking after the property?

Start that conversation now, in order to understand what your family really wants and avoid possible disagreements down the road.

Keeping a cottage in the family requires tax planning.

The biggest hurdle is capital gains tax, which is the difference between the fair market value of the cabin today, and what you paid for it plus any major improvements like a dock or boathouse.

One strategy to avoid capital gains on the sale may be to designate it as your principal residence. However, this option can become complicated if you have owned more than one property for your personal use during the time you’ve been living at the cabin.

It is important to talk to a financial planning professional to calculate the right way to go based on your financial situation.

What if you leave the cottage to the kids in your will?

Upon the death of the last spouse, the property will be assessed as if it was sold at fair market value. That means not only the cabin, but also the tax bill, will pass to your estate. Without proper planning, your family may have to sell the cabin itself in order to cover the taxes owing.

One solution is to purchase life insurance and let the death benefit pay the taxes on the cabin. But you don’t necessarily need to pay for this insurance on your own. Your children may be willing to pay some or all of the premiums if it means the difference between keeping the cabin or selling out of financial necessity.

You may also find that one child wants to keep the cabin and the other has no interest. With the right planning, you can treat them both fairly by passing the cabin on to one of them and designating other assets or insurance proceeds to make things “fair”. But again don’t forget the taxes owing in this calculation.

What about transferring ownership to your children during your lifetime?

You can sell or even gift the property to your heirs while you’re still alive, but it will still be taxed as if it was sold at fair market value at that time. Careful tax planning is critical if you’re looking at doing this, and it needs to be done before any action is taken.

In addition to the taxes owing at the time of transfer, you will lose control over the asset, so this course of action is generally not recommended unless you are completely certain you will no longer want any say in the future of the property.

Talk to your family and your Certified Financial Planner (CFP) professional about ways your family getaway can continue to be a place for building happy memories for generations to come.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

More It's Your Money articles

About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories