3 succession case studies

How these cottagers passed on their properties

By Peter LillicoPeter Lillico

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Situation: Capital gains tax has been “paid” up to 1995 from the mother’s $100,000 lifetime capital gains exemption

Solution: Transfer it to all the children now, with a co-ownership agreement between the children to avoid disagreements

Mary Wornoff was 72 when she gave her modest, two-bedroom 1940s log cottage on Green Lake, near Renfrew, Ont., to her five children. It was 1994 and she wanted to crystallize the property’s capital gains before the federal government phased out individuals’ lifetime $100,000 capital gains exemption. Her lawyer advised her to see if the two children who were living in the United States, especially the one farthest away in California, might be content to sell their interest in the cottage to the other three, given the cabin’s small size and the limited number of usable summer weeks due to blackflies: just eight weeks during an average summer. But none of the five wanted to be excluded from their cherished outpost on the rocky granite point, where the water is so clear that the lake bottom is almost always visible. “It’s our American siblings’ only link to the family now,” says Tom Wornoff, 48, a brother who lives in Peterborough, Ont. “The cottage is the one thing that holds the family together when you’re all scattered.” Indeed, Wornoff says that the children have come up with the idea of allowing the American residents to bank unused time at the cottage.

The Wornoffs are full of great ideas about how to share a cottage—a template that other cottagers could use. Tom and his wife, Rosie, drafted a co-ownership agreement for his siblings to consider and for their lawyer, Peter Lillico, to review and draft into proper legal language. It includes several useful clauses: that the cottage can be sold to a third party only with unanimous consent of all the owners; that if one sibling wishes to sell to the others, the others can issue a promissory note and pay in five equal installments over five years without interest; that all expenditures must be approved by a majority of the owners; and that none of those prized cottage contents, such as wicker tables or birchbark lamps, shall be disposed of or replaced without the written consent of the majority. “Some of us might have an attachment to an old chair,” explains Tom.

The Wornoff siblings particularly value the history of the cottage—how their mother built it when she was still young and single to avoid losing her foothold in that part of the wilderness when the local graphite mine closed and put her father and brothers out of work. She bought the land for $25 and built the first cottage on the lake. Today, it is still rustic—no electricity, running water, or telephone—but is worth perhaps $70,000. Annual maintenance costs run only about $500 and property taxes just $500. Until her death, all the siblings will be carrying the shared costs on their own, and allowing her to spend as much time as she chooses at the cottage, even though she did not keep a life interest in the property. Upon her death, a trust fund of $10,000 will be established from the proceeds of her estate to help fund ongoing costs and maintenance.

Tom Wornoff’s generation already has plans for their children’s generation. Offspring will be added as tenants in common as they come of age—a move that will lock in their legitimacy to be there, even though it may trigger more capital gains as a share of the property transfers to them.

This article was originally published on May 17, 2004

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