Last week in my law office in Ottawa, I met with Joan (not her real name) to finalize her late husband’s estate. At the end of the appointment, Joan said to me that she would like to meet with me again in the near future to re-visit her own estate planning. In particular, now that her husband was gone, she felt it was time to decide how best to deal with the family cottage. As we approach the first long weekend of the summer, this may be an issue that is on your mind as well.
I briefly reviewed with Joan the various options that are available when it comes to passing the family cottage to the next generation. I explained that the best option for her will depend upon many factors such as her estate planning goals, her children’s expectations and financial situations, and the capital gains tax which may be owing. I suggested that she give it some thought and discuss the options with her children before we meet again to decide what to do.
Whatever Joan ultimately chooses to do with the family cottage, for tax purposes the outcome will remain the same — capital gains tax will likely be owing unless the cottage has gone down in value or it is the only residence she owns. She is wise to be doing advance planning as this can help her and her family anticipate and plan for the tax burden.
Joan was also wise to consult with me early in the process. Regardless of what option you might be considering with respect to your family cottage, professionals can provide key pieces of the puzzle:
- a tax accountant as the taxation issues can be complicated and you need proper advice regarding capital gains tax;
- a financial planner who may be able to offer suggestions for ensuring there are funds to cover the capital gains tax liability; and,
- a lawyer specialized in estate planning who can draft the necessary documents to ensure your desired goals are achieved.
You will want to carefully consider the various options before deciding what is best for you and your family. Openly discuss your ideas with your children to get their input before you decide how to proceed. And when it comes to taxes, remember that a little advance planning can go a long way. For many of us, the family cottage is where many wonderful memories are made. Careful estate planning can ensure that many more memories will be created for generations to come.
Wishing everyone a safe and happy Canada Day long weekend!
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Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.