CREW<\/a> that there are tax implications in virtually every scenario involving cottage successions, and that complicates estate planning, but there are ways to mitigate the severity.<\/p>\n\u201cFor a cottage owner, regardless of how they want to pass it along\u2014as a gift or putting it in a trust\u2014there will be tax implications for the owner because this is a capital asset,\u201d he said. \u201cIf they gift it, it\u2019s deemed to have been sold at fair market value, so now there could be $100,000-200,000 in capital gains they have triggered on themselves. If it\u2019s gifted, the child wouldn\u2019t face the tax implications, but the parents would be hit with a massive tax bill.<\/p>\n
\u201cThe other option is they could sell it to the child at fair market value and now, at least, the parents have the means to pay that tax bill, but the challenge with that is how does the child come up with the money to buy it?\u201d<\/p>\n
A potential solution is for the cottage to be sold at less than market value, although even that carries the risk of double taxation. Even creating a living trust, says Shelestowsky, would be considered a deemed disposition by the Canada Revenue Agency, but it would most likely avert legal disputes down the road.<\/p>\n
\u201cThe nice thing with the trust is parents can still control the cottage and they can name the kids as beneficiaries. It does avoid some probate issues like parents passing away. With a trust, parents and children can have control.\u201d<\/p>\n
Trusts require separate tax returns, which can be convoluted, so Shelestowsky recommends having a deed of gift because cottages are often the subject of litigation between siblings, with courts usually rejecting gifting and putting the cottages through estates. Trust agreements are additionally necessary to satisfy questions surrounding who has rights to the cottage and when, who will look after maintenance and future development, and whether or not a cottage can be sold to a third party. The agreement also exists to prevent family members from squabbling about the property in question.<\/p>\n
\u201cThis isn\u2019t a regular capital asset; it\u2019s an asset that has a lot of emotion attached to it and when emotions come into play, at least you\u2019ll have something to fall back on,\u201d said Shelestowsky.<\/p>\n
With the surge of cottage purchases in the last year, Shelestowsky anticipates more family rows in the near future, but a lot of that acrimony can be avoided if families openly discuss inheritance instead of making assumptions.<\/p>\n
\u201cWhen trying to do a succession plan for a cottage, make sure everyone is treated equally, meaning if one child doesn\u2019t want it, you still can\u2019t have one child who benefits and the other doesn\u2019t because that could potentially result in a legal dispute down the road.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Cottage values in Ontario have skyrocketed through the COVID-19 pandemic as scores of people fled Toronto for arcadia and demand vastly outstripped supply, however, this could lead to improper estate planning and even litigation down the line. Paul Shelestowsky, a senior wealth advisor with Meridian Credit Union, told CREW that there are tax implications in […]<\/p>\n","protected":false},"author":6,"featured_media":23737,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4],"tags":[],"acf":[],"_links":{"self":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts\/9209"}],"collection":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/comments?post=9209"}],"version-history":[{"count":1,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts\/9209\/revisions"}],"predecessor-version":[{"id":23736,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/posts\/9209\/revisions\/23736"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/media\/23737"}],"wp:attachment":[{"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/media?parent=9209"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/categories?post=9209"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.canadianrealestatemagazine.ca\/wp-json\/wp\/v2\/tags?post=9209"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}