By Penny Caldwell
Nothing is sure but death and taxes. Ben Franklin said it centuries ago, but it’s never been more relevant than now for the aging cohort of cottagers preparing to transfer ownership to the next generation. “If you’ve got time and some creativity, and you are dealing with advisors who have done it before, then it’s straightforward,” says Jamie Golombek, the managing director, tax and estate planning with CIBC Financial Planning and Advice. “The problem is if you haven’t done any planning, and someone dies, then there’s a tax bill to pay right away. Where’s the money going to come from?”
Where indeed? But finding the money for taxes is only one part of a sound succession strategy. With planning, you can also ensure that the cottage stays in the family and that it goes to the children who really want it. You can lessen the capital gains tax hit or even postpone it for generations. You can reduce or avoid costs such as the estate administration tax (also known as probate fees). And you can protect the cottage from financial or marital claims, a concern that’s top of mind for many parents. Finally, and perhaps most important, you can put a cottage sharing agreement in place that provides a framework for solving multi-owner conflicts.
Where to start? The good news is that there’s at least one neat, novel trust technique for keeping the cottage in the family. But hold that thought. To understand the benefit of planning, you first need to understand all the ugly issues around cottage succession, because the best option may be a combination of strategies. Ready? Here we go.