Did you know that inheriting a cottage (if not done correctly) can break up your family? This happens to at least 6 out of 10 families and can be avoided.
Here’s what happens: Bob shows up with his tools every spring and gets to work opening the cottage. At the end of every sun-drenched season, he and his kids spend a whole weekend closing it down for the winter. His sister Sandy and her family and their friends show up on most long weekends with their coolers and sunblock and enjoy the peace and relaxation of the cottage without a thought about the sump pump, the wasp nests or the repairs needed on the dock. Bob will do it and truly, he doesn’t mind.
But here’s the problem: Bob and Sandy’s widowed mother passes away and the cottage is left to Bob and Sandy – 50/ 50. Sandy wants to sell. Bob does not.
Ding, ding, ding…
When Bob and Sandy’s mom passes away and they inherit the cottage, based on the value of the cottage the government charges them Capital Gains Tax. So now they owe $350,000 to the government.
So you may be thinking “hey, what if Bob and Sandy’s mom had gifted the cottage to them before her passing?” but that’s not exactly straightforward. Each situation is different and that’s why I can’t stress enough how important it is to have these conversations and address these decisions while all options are available to you.
The worst part of this story is that after 4 years and thousands and thousands of hard earned dollars spent on legal fees, Bob and Sandy and their respective families don’t speak. They don’t even see each other at Christmas.
How can you prevent this from happening to you and your family?:
- Pass it on before you die (ok, that’s a little harsh)
- Have the conversation while you can
- Gift it in your will
- Create a trust that owns the cottage
- Use insurance to offset the capital gains burden
- Just sell it
As you’re closing up the cottage this year, take a moment to consider it’s role in your family moving forward.
If you and your family don’t already have a plan and need one, then I encourage you to gather together and start by having the conversation.
If you would like some guidance or have any questions, remember I am always here for you.
Please click here to read the market update for August 2018.