GUEST COLUMN: Speaking of the cabin

There will be tax consequences if your leave the property to your children in your will

Your family has always had a great time at your cabin, so it’s natural to assume you’ll be handing it off to your family after you’re gone.

But if you don’t ask your adult children what they really want and plan for the tax consequences that may not happen. Here are a few essential cabin succession planning steps you should take.

Talk to your adult children now and find out who wants to take on the responsibilities and who doesn’t. Then avoid future family squabbles by making arrangements so your non-cabin inheritors will be treated fairly in your will.

Unless you’re passing assets to a spouse, when you die you are deemed to have disposed of your capital assets at fair market value – meaning if your cabin property has appreciated in value, your estate will face a significant capital gains tax liability.

You do have the benefit of a principal residence tax exemption but you can apply it to just one property at a time and that can be either your cabin or your city home but the one you don’t choose will be subject to tax on its increased value.

There will be tax consequences if your leave the property to your children in your will – so make sure there will be sufficient funds in your estate to pay any tax liabilities.

Life insurance can be a good strategy for covering the capital gains on your cottage.

The death benefits are usually tax-free and can be used as a ready source of cash to avoid a forced sale, to pay capital gains taxes, or to equalize your estate among cabin inheritors and non-cabin inheritors.

Trying to escape paying tax by transferring your cabin to your children during your lifetime won’t work.

It will trigger an immediate capital gain at the ‘fair market value’ of the property. And if you sell your children your cabin at less than ‘fair market value’ you will still have to pay tax on the real price but your children will be deemed to have paid the lower price resulting in double taxation when they sell the cabin.

The only advantage of transferring part or complete ownership during your lifetime is that the amount of the gain taxable in your hands is ‘capped’ at the time of the gift or sale.

It’s a good idea to plan now for the succession of your cabin – and the rest of your estate, for that matter. Your professional and legal advisors can help you work through the options that are best for you.

Andy Erickson is the division director with Investors Group, Vernon. This article is provided for information purposes only. Please consult with a professional advisor before implementing a strategy.

 

 

Just Posted

Okanagan rocked by AC/DC and Hip bands

Bonfire and Hip Replacements scheduled for Vernon, Kelowna and Kamloops

Okanagan organizations team up to host outdoor-accessibility event

‘It’s important for anyone to be active’: TOTA spokeswoman

Cannabis edibles, extracts legalized today in Canada

You can now legally purchase weed brownies!

Valley First feeds a big Okanagan need

Feed the Valley succeeding in fighting hunger

Cinderella pop-up store helps Vernon grads, teens

Teens Count Too hosting fundraiser where graduation dresses and suits are available for purchase

Competition shakes up for the Okanagan Mixoff

The Okanagan Mixoff takes place Nov. 7 in Kelowna

‘Sky didn’t fall:’ Police, lawyers still adjusting after pot legalization

Statistics Canada says 541 people were charged under the federal Cannabis Act between Oct. 17, 2018 and the end of the year

Fewer people prescribed opioids in B.C., but other provinces lack data: doctors

Patients who began taking opioids were prescribed smaller doses for shorter duration

Electric cello, stolen from vehicle in Williams Lake, returned to U.S. owner

Rita Rice of Texas said she and her husband had given up hope of ever seeing it again

Park shelter proposed in honour of Salmon Arm volunteer Rob Nash

City council supports plan while family and friends to cover cost of building, materials

Most Read