October 6 2016

Family cottage succession with Trusts

Do you have a cottage that you want to transfer to future generations?

Cherished memories you and your children have of building and rebuilding the dock, sleepovers with cousins and family dinners are all reasons to want to “keep it in the family." With that said, additional complexities may arise when a cottage is to be shared among multiple family members.” Also, cottage prices have increased significantly in some areas and owners may be faced with capital gains taxes.

An effective cottage succession plan is needed to ensure the most efficient method of passing the cottage to your children. One option to consider is the use of a trust either now during your lifetime or in your will as part of an overall estate plan.

The ownership of the cottage could be transferred to a trust to be managed by a trustee within the terms of the formal trust agreement. Where the property is transferred to a trust you will be deemed to have disposed of the cottage at Fair Market Value.

Effective use of a trust

Using a trust to hold the family cottage may be appropriate in certain circumstances including the following:

  1. Where parents would like continued access to the cottage throughout their lives but would like to pass on the future increase in value, as well as the related tax liability, to future generations. The trust agreement should contemplate the ongoing management of the property and who will be responsible for any costs. As part of the trust, the parents may also choose to include a sum of money for the upkeep of the cottage. This contribution to the trust could make up for any of the children who may not be able to pay their share of expenses.
  2. Where parents feel the children are not able to handle the financial responsibilities or have concerns over existing or potential creditors. Where a trust is considered discretionary, no single beneficiary will own the cottage and therefore does not have the ability to sell the cottage. Creditor protection may also become particularly important where any of the children have marital difficulties. If properly structured, the trust may prevent the cottage from being considered a marital property asset.
  3. Decision making can be simplified by having the trust in place and having the trustee make the decisions as to use, upkeep and eventual disposal. This would simplify the process of having consensus on sensitive issues. As a general rule, note that for tax purposes a Trust is considered to dispose of all of its property at Fair Market Value on its 21st anniversary and pay all taxes relating to the disposition. However, prior to the 21st anniversary, a trust may “wind-up” by transferring the property directly to its beneficiaries on a tax-deferred basis. The individual beneficiaries will then own the property. Probate fees will be avoided on death of the original owner because the cottage will be owned by the trust and not the deceased! 

Planning for the future of your family cottage has many issues and the use of a trust may or may not fit your family’s needs. For more information on the strategies available to assist with cottage succession planning, contact Richardson GMP Investment Advisor.
Previous Tax & Estate Planning Strategies
View items by year:






  • 2016 Tax Planning Checklist

    Dec 05, 2016

    Financial planning is time sensitive. While the following list is not exhaustive, here are some items that must be considered, incurred or paid prior to year-end in order to be included in your 2016 tax return.
    read more
  • Dealing with estate conflicts

    Nov 10, 2016

    Estate conflicts can cause irreparable harm to family and personal relationships. Prevent conflicts before they occur and explore alternative ways to resolve a dispute should one arise.
    read more
  • Family cottage planning with trusts

    Oct 06, 2016

    An effective cottage succession plan is needed to ensure the most efficient method of passing the cottage to your children. One option to consider is the use of a trust either now during your lifetime or in your will as part of an overall estate plan.
    read more
  • Being an executor

    Sep 14, 2016

    Many of us have received a request from a friend or family member to act as the executor of their estate. Acting as an executor can be a daunting task that takes time, knowledge and patience.
    read more
  • Creating a will to protect loved ones

    Aug 04, 2016

    The people and causes you care most about can be taken care of by your estate—if you plan properly.
    read more
  • Introduction to Trusts - A cornerstone to your estate plan

    Jul 06, 2016

    There are many benefits to you and your family in using trusts for both financial planning during your lifetime and estate planning. Properly set up, a trust can lead to substantial tax savings as well as provide control and preservation of your assets.
    read more
  • The value of a fireproof safe

    May 06, 2016

    To help you in preparing the contents for your fireproof safe, we have compiled a general checklist of what you should keep in it for protection and easy access in the event of an emergency.
    read more
  • Federal Budget 2016

    Mar 22, 2016

    Finance Minister Bill Morneau announced the Liberal’s 2016 Federal Budget plan on March 22, 2016 with promises of supporting Canadian families and a clear focus on the middle class wage earner.
    read more
  • Opportunities for tax savings

    Mar 03, 2016

    Investing time and effort as you prepare your personal tax returns can result in substantial tax savings. We've put together tips to assist you in identifying potential opportunities to reduce taxes and protect your family’s wealth.
    read more
  • Top up your RRSPs. Maximize your savings.

    Feb 03, 2016

    Once again, we are fast approaching the RRSP season deadline. Monday, February 29, 2016 is the last day you can make tax-efficient RRSP contributions for 2015. This is a great opportunity for you to review your retirement investment strategy with your Investment Advisor.
    read more