As people prepare to open their cottages for another summer, others contemplate passing them on to the next generation. But where do you even start a task like that? What things do you need to consider?
Consider Your Situation
First things first, determine what the end goal is. Do you want to pass it on to one of your children or multiple? Do you want to control the property as long as possible, or do you see it as a responsibility you want to pass on sooner? Is the cottage worth a lot more now than when you purchased it?
You also need to consider your children’s situations. Do they work well together? Can they purchase it now (if you plan to sell it to them)? Is there any concern about a future divorce or bankruptcy?
Time to Talk
Once you’ve considered your situation, there are two parties you’ll need to talk to.
One is your kids. Gauge their interest in the cottage. Maybe they have different dreams, or the timing isn’t right.
Two, your wealth advisor. They can help you develop strategies for the many factors involved:
- Timing – What is the best time - Now, in the future or upon death
- Taxes – Options for capital gains and land transfer taxes
- Equalization – Plans to gift an equal amount to children not receiving the cottage
- Other Experts - When to bring a lawyer and/or an accountant into the conversation
Succession Strategies
There are a few options available when transferring a cottage that your wealth advisor will likely review with you. Here is a brief overview of a few:
- Selling or gifting now – This is the simplest option, you sell or gift the cottage to your children at a value you deem fair - Dealing with the capital gains and land transfer taxes now. The cottage would then be theirs to maintain and do as they please.
- Gifting Upon Death – You maintain control of the property until your death, when you leave instructions in your will. The estate would handle the costs, so you’ll need to ensure it will have the means to do so.
- Trusts – You place the cottage in a trust – Now or in your will, with the purpose of protecting it from risks such as complex family situations, divorce, or bankruptcy. There are additional and ongoing costs associated with this option, but for those who have concerns, a trust may bring much needed peace of mind.
- Using Insurance – Insurance is a great tool if you're looking to gift the cottage in your will. It can be used to equalize your estate between children or help with the costs the estate will incur due to your succession plans.
Above all else, start planning early. Several factors go into passing down a cottage to the next generation. It’s prudent to start discussions sooner rather than later.
If you're considering passing your cottage on to the next generation, contact KLT Wealth Management.
