(NC) Soon it will be summertime at the family cottage where the living is easy…for now. Have you given any thought to how it will factor into your estate plan? Does it become your retirement home or do you sell it to the kids? Have you considered who will be responsible for paying the related taxes? If not, here are some tips to help you avoid getting dinged by the taxman.
Make the cottage your principal property:
As with most investments, the real estate value of a cottage will increase over time. The difference between the cottage's purchase price and the final sale will generate a capital gains tax when it's inherited, sold or gifted to children and/or heirs. The CRA capital gains rule states that the profit or capital gain related to the transfer of ownership of the property should be taxed at 50 per cent, payable immediately. One way around this is to sell the family home and declare the cottage as the primary residence. What's interesting about this option is that the taxman will grant you a "principal residence exemption" even if you only live at the cottage for short periods each year.
Transferring the cottage to the kids/heirs:
One way of protecting your family from the burden of the capital gains tax is by purchasing a life insurance policy. Since many older people in their 70s and 80s can't be insured, this insurance policy would be managed by the kids and/or heirs. Generally, the annual cost is affordable but this is finally determined by the insured's age and health. When both parents die, the insurance proceeds will be used to pay for the capital gain tax and any other maintenance costs.
For more strategies on keeping your legacy in the family, speak to your insurance broker or financial advisor. For immediate answers, you can visit the Desjardins Insurance website at www.desjardinslifeinsurance.com.