Preserving The Family Cottage For Future Generations

It's cottage season. Do you have a plan to preserve this treasured family asset?

Every summer, many Canadians pack up their belongings and head to the cottage. For some this is a family ritual that has been passed down from several generations. To ensure that your treasured cottage is safeguarded for future heirs, it is essential to have an estate planning strategy in place. If a proper estate planning strategy is not put in place, your estate could face a large tax bill, possibly forcing the sale of the property to pay the tax liabilities.

Under current tax laws, a cottage that is not used as a principal residence by the owner is considered a capital asset. Therefore, in the year the cottage is sold or transferred to someone other than your spouse, or on the death of the last spouse, it is subject to capital gains tax, provided the property has increased in value.

Assuming your cottage is not your principal residence and that upon your death there is no spouse to transfer the property to, would your heirs be able to afford to pay the taxes due on the property?

For example, if the property increased by $200,000 from its original purchase price, 50% of the capital gain, or $100,000, is subject to income tax. Therefore, simply leaving your cottage to your heirs could trigger a capital gain and produce a sizeable tax bill. If your beneficiaries inherited your cottage today, do you know how much tax they would have to pay?

Insurance may be an effective solution to fund the tax liability upon transfer of the cottage to your heirs. If insurance is an option for you to consider, ask a CIBC Wood Gundy Investment Advisor about purchasing a joint last to die insurance policy. When the second spouse passes away, your heirs can use the death benefit from the policy to pay any taxes owing on the cottage and you can be assured that your family will continue to enjoy the cottage for generations to come.

Read more about this topic:

• Insurance Overview

A CIBC Wood Gundy Investment Advisor and Estate Planning Specialist can help you establish a succession plan for your summer getaway that works for you and your personal circumstances.

Use our Find An Advisor tool to locate a CIBC Wood Gundy Investment Advisor near you and take the first step to achieving the financial future you want.

The information contained herein is considered accurate at the time of posting. CIBC and CIBC World Markets Inc. reserve the right to change any of it without prior notice. It is for general information purposes only.

Insurance services are available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc.