Strategies for Passing Down the Family Cottage

Cottages often hold a lot of sentimental value to families. Many cottage owners would like to see their children and grandchildren get the same joy from the property that they did, even after they are gone. Leaving a cottage to your family though has tax implications and if they aren’t planned properly, can be a serious financial burden to both you and the kids. 

The following are three straightforward and cost-effective ways to leave a family cottage to the next generation: 

1. Gift It While You Are Still Alive: By gifting the cottage while you are alive, you can personally deal with any capital gains associated with the sale. The tax burden would fall to you instead of your kids and they will not have to worry about a tax bill when you die. It may be prudent to consider gifting the cottage over a number of years to spread out the tax burden. With this strategy, you give up control of the property which means it could be sold by your child or become an exposed asset in the event of marriage breakdown. 
2. Life Insurance: Perhaps one of the easiest ways to tackle the taxes on your cottage is to purchase a life insurance policy. The proceeds of the insurance can be allocated to deal with any taxes or expenses that arise from your death. After the life insurance deals with the tax burden, the cottage can be passed to your heirs without any great expense to them. This strategy allows you to have control of your property until you die and allows it to pass easily to your children. 
3. Just Sell It: Unfortunately, it is not always the case that the child(ren) will want the cottage or, if they have multiple children, will be able to peacefully share. They may not be interested in taking on the financial burden of running a second property and it could be in the families’ best interest to have the cottage sold when you die. Once the taxes and transaction expenses have been paid out of the proceeds, the remainder of the cash can be given to the children to do with what they wish. 

It is important to discuss with your children if they desire to own the cottage in the first place. If they do, it is essential that you work with a tax professional to ensure that your property gets handed down in the most tax effective way possible.