Safeguarding Your Family Cottage for Future Generations

August 7, 2019

Family assets are something that most people do not think about until their golden years. Sometimes these assets make it into a will, while too often, even in a will, these sacred family assets that support family history and traditions are put at risk because of improper planning of their transfer to the next generation. I have a very personal story on this exact issue.

Kawagama Lake, 1915

My great-grandfather Arthur and his son George, spent quality time fishing together on Kawagama Lake, just south of Algonquin Park, as early as 1900, when it was still considered Crown Land. At the northern point of Haliburton county, Kawagama Lake is the largest in Haliburton and does not have any settlements on it. My family built the first cottage on the lake in 1915, which still stands today. The lifetime of memories I have from this special place cannot be replaced. This amazing piece of heritage was passed down over the generations, but only astute planning can ensure these treasures are kept in the family.

Not a Principle Residence

Generally, these ‘extra’ residences, such as a summer home or family cottage are not considered a principal residence. Principal residences upon sale or transfer through an estate are tax-free for capital gains purposes, although it may be subject to probate or land transfer fees, dependent on the province where the transaction takes place. Probate in Canada can range from 0.5% up to 1.5%, and you will need to look at these fees in your jurisdiction before making these plans.

Wealth Sense Advice

So how can you transfer a family cottage without burdening your family with fees and taxes? Unfortunately, there is no ‘one size fits all,’ and you will need to talk to a legal/Tax Advisor and an investment advisor to decide which of the following options may be right for you. Some possible

scenarios are noted below:

  • Gift it over five years to lessen the tax burden while you are still alive. This breaks down the fair market value capital gains tax you will owe over five years, and the promissory note to your child can be forgiven in your will. However, you lose control over the asset in the process.
  • Pass on the cottage in your will, either as a straight inheritance or in a trust. A trust can cost between 1-2% of the value of the asset per year but offers legal protection from disputes, liens, divorce or bankruptcy.
  • Insurance protection offers a final way to offset capital gains taxes and other fees in transferring the cottage to family. The insurance policy can stipulate a trust beneficiary or that the proceeds be used to pay for the transfer of the cottage.
  • The last resort could be to sell the cottage and leave the proceeds to your family to purchase their own cottage, but that would not work in a situation such as my family legacy cottage.

Instead of just putting your main family assets into your will, if they hold special value or real net worth, it may be worth a discussion with an Investment Advisor on how best to transfer their wealth to the next generation. Feel free to start that conversation with Steve McBride, Investment Advisor.



This blog is solely the work of Steve McBride for the private information of his clients. Although this author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and this author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of this author alone, and they have not been approved by, and are not necessarily those of, Echelon.

Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

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