06/06/2022
For many families, that cottage is a place filled with happy memories that’s been in the family for generations; but keeping the cottage in the family from one generation to the next isn’t always as easy as it might seem.
There are many issues to consider, including how the taxes will be paid. When you pass along your cottage, you are also passing along a potentially large tax bill, which your beneficiaries may or may not be able to afford. Depending on their financial situation, your beneficiaries may be forced to sell the family cottage simply to cover the taxes. There are two main types of tax to consider – capital gains taxes and probate taxes. Capital gains taxes >> If your cottage has been in the family for many years, its value has probably increased dramatically. The property your family bought for a few thousand dollars might be worth a few hundred thousand dollars today. Even property bought within your lifetime might have experienced this type of exponential growth. This increase in value can result in a very large, taxable capital gain, which is triggered when you pass along the property to anyone other than your spouse, including your children. However, there are several ways you can address this tax bill, and even reduce or defer it. (1) Gifting before death, (2) investment funds such as Gifs, Seg Funds or (3) Insurance policy.
For options (2) and (3) Cover the tax bill with an insurance policy or separate GIF seg fund and allocate proceeds to beneficiary which bypassess probate / tax free. The most common way for property to be passed on to the next generation is through a bequest made in your Will. When your property is bequeathed to anyone other than your spouse, it triggers a taxable capital gain, which your beneficiaries may not be able to afford. However, you can cover this tax bill through a life insurance policy, which provides a benefit that can be used to offset the expected tax bill when your estate is settled.
Contact me directly for a discussion on options, calculating est. capital gains and insurance coverage solutions.
