Real Estate

What’s the best way to transfer a cottage to family?

Transferring your cottage to a family member

What is the best way to transfer the cottage to a family member? — Tom Kahl

Sorry—there’s no clear-cut best way. The right plan depends on your family, your financial situation, and how everybody involved wants to use the cottage in the future. One option is to pass the cottage on now to the family member—for example, your child—either by selling it or by gifting it. Of course, this immediately triggers the dreaded capital gains tax. That figure is based on the cottage’s assessed “fair market value,” even if you give Junior the cottage for free, or you sell it at a below-market price. Alternatively, you can leave the cottage to a family member in your will. Again, this triggers the capital gains tax—in this case, at the time of your passing. You also have the choice of transferring only a portion of the cottage by, for example, making you and Owner No. 2 “joint tenants.” You’ll share cottage ownership now, with the surviving owner inheriting the entire cottage after your death.

There may be money-saving strategies that you can use in cottage succession. For example, declaring the cottage as your principal residence, or transferring the cottage in stages—20 per cent per year over five years, say—instead of all at once. (This reduces the impact of the capital gains tax because it’s spread out.) To figure out the best plan, consult with your family and your financial advisor.

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