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Despite the obvious benefits of owning a cottage or investment property, there are numerous issues that can arise when they are transferred. For example:

For most individuals, 50% of the increase in value of their property determined when the property is sold or by the deemed disposition that occurs at death or when the property is gifted, will be included in their taxable income (capital gains tax). As many cottages have significantly increased in value in recent years, the tax liability is often substantial. Land transfer tax may also apply. A principal residence exemption may avoid all or a portion of the capital gains tax. One should also consider life insurance for funding the tax liability rather than having to sell the property or even to equalize the division of the estate if a beneficiary will not receive an interest in the property.

Estate administration tax (probate) may be applicable when a property is transferred on death. Joint ownership or a living trust are options to avoid probate, however the implications must be carefully examined to achieve optimal results.

Selling the property and dividing the proceeds may be prudent for maintaining family harmony, avoiding probate fees and enabling you to pay any capital gains tax while living rather than at your death.

As each family’s circumstances are unique, contact Andrea P Kelly, to ensure your property succession plan is appropriate for your overall family wealth plan.

Download the PDF: Concepts Newsletter – Summer 2011

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