Handing Down The Cottage – Part 2
Handing down the cottage is a challenge facing many families in the South Georgian Bay area where many properties are secondary homes for their owners. Recently, I had the privilege of spending some time with Geoff Parker of Stonehaven Financial Group Inc. discussing some of the various issues surrounding succession planning for such properties. Geoff kindly agreed to share this information with my readers which is presented as a four part series. Read part 1 here.
When you have made the decision to transfer ownership of the cottage to your children there are a number of ownership structures you could consider.
The first and most common is joint tenants with the right of survivorship. This structure provides for the simplest transfer of ownership at your demise as your remaining interest automatically transfers to the surviving owners without the need of a will and without incurring the cost of probate. On the downside joint tenant ownership could make the cottage subject to creditor and/or matrimonial issues should they arise. And if one of your children were to predecease you, their interest in the cottage reverts to you and the other surviving children. It doesn’t transfer to their family.
Ownership as tenants-in-common provides each owner with a proportionate divided interest. They can will it, sell it or give it away as they see fit. Ownership is not automatically transferred at death and must be dealt with in a will and is subject to probate fees. Under this structure a child can ensure that their family will have a share of the cottage after they are gone.
A non-share corporation transfers the ownership of the cottage to the corporation. Family members are unitholders and, subject to the bylaws of the corporation, have specified rights and obligations with respect to usage and expenses, respectively. The primary benefit of this structure is the elimination of future taxes to either the corporation or family members. The simplest analogy for a non-share corporation is a time-share. Non-share corporations work best where there are multiple dwelling units on the same property.
The last ownership structure to be considered is the inter-vivos trust. The two versions of this type of trust are the cottage/family trust and the alter ego trust. The former requires the transfer (sale) of the cottage to the trust. The trust then owns and is administered by the trustees for the family as beneficiaries. A capital gains event occurs at the transfer, but all future gains are attributed to the trust. An alter ego trust is set up to own the cottage. Capital gains is deferred until the death of the original owner of the cottage. With this type of trust ownership is automatically transferred to the beneficiaries of the trust without the need of a will and without triggering probate tax.
Each ownership structure has its own benefits and limitations. If you are considering the transfer of ownership to family members, you should share your plans with a licensed legal professional who is a specialist in wills and estates.
In the next posting strategies to minimize tax will be discussed.
If you have any questions for Geoff about ownership structures or cottage succession planning, please feel free to email him at geoffrey@stonehaven-group.ca or contact him via his website at www.geoffreyparker.ca.
This article was prepared by Geoffrey Parker who is an Investment Advisor & Certified Financial Planner with Dundee Securities Corporation., a DundeeWealth Inc. Company. This is not an official publication of Dundee Securities Corporation and the author is not a Dundee Securities analyst. The views (including any recommendations) expressed in this article are those of the author alone, and they have not been approved by, and are not necessary those of Dundee Securities Corporation.
