Estate Planning- making the most of your 2nd property.

 

Do you own a 2nd property’, such as a cottage or 2nd home, in addition to your primary residence?  If one of your financial goals is to pass on your properties to your children?   Important things to consider that you can do to help your family.

You can’t avoid capital gains taxes by selling your home and making your cottage your primary residence.  Also selling the cottage to your children for a token amount of a $1 won’t help them avoid taxes either.

2 Estate Planning Strategies

However, here are 2 estate planning strategies you can use to try and minimize the out-of-pocket costs facing your family.

1) Purchase a “Last-To-Die” Life Insurance Policy

Let’s say your children end up having to pay $50,000 capital gains tax on your $200,000 cottage capital gain when they inherit it.  You can have them purchase a $50,000 last to die life insurance policy.  The remaining spouse would take over the policy when the other passes and when needed, your children would get $50,000 in a tax-free death benefit.  Allowing that money to cover the cost of the capital gains tax.

2)  Purchase Life Insurance Police with your estate as the beneficiary

Another estate strategy is to buy a $100,000 life insurance policy and make your estate your beneficiary.  When you pass, the estate bequests the money to a church or other registered charity causing a100% tax credit on the bequest at death.  The tax benefit could be applied to reduce the taxes owing.  The end result: your children, as beneficiaries of the estate, would take over the cottage without having to pay as much money in tax.

Using either estate planning strategy can significantly decrease what you pay out of your pocket to the government, but it’s always important to discuss any strategy with someone qualified.   If you have any questions, feel free to contact me for a referral  to a  specilaist that can help you decide what’s the best route to take to protect what you’ve worked hard to get.

Sun Life financial

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