An well writtien article I came across in the Vancouver Sun this past weekend By Derek Sankey, For Postmedia News. A few ideas to take into account regarding passing the family recreational property down.
For many families, heading out to the cabin on the lake or a lodge nestled in the mountains with the kids has been an annual ritual where memories are created, new friends are made and good times are had by all.
Passing down that property to the kids is a common goal for a lot of those parents, who want to create a legacy property that can be enjoyed for generations to come. But when it comes to the details of how to structure such an arrangement, things can get very complicated very quickly, according to experts.
"With the demographics being the way they are, it's just going to become more of an issue for families that currently own B.C. or Alberta (recreational) property," says Jamie Stewart, a Calgary lawyer with McLeod and Co. LLP who specializes in Alberta and B.C. recreational real estate.
Christine van Cauwen berghe of the Investors Group says starting a conversation about passing down the family recreational property can be an awkward, but necessary, step to eliminating the potential for a crisis or quarrel among other members in the family.
You also have to consider such details as probate fees, which range from province to province and are generally a percentage of the asset that's paid to the government when distributing your assets through your will. Probate fees are generally higher in B.C. and Ontario than in Alberta.
Many parents will attempt to transfer a property to the children before they die by putting the kids on as joint tenants, but that's a decision that can lead to some serious questions by Canada Revenue Agency.
"We talk really seriously with people who are considering that because it can also be a very risky move," explains Rick Breen, an estate lawyer with McLeod and Co.
If a child gets divorced or goes bankrupt, there is also potential to lose that heritage asset. You should also consider liquidity issues. A big tax bill on an asset you don't want to sell could force you to sell it if you don't have the money to pay the tax.
You also need to consider life insurance, especially if you make the insurance payable to the estate.
Tax arrangements can get complex, which may require the expertise of an experienced tax lawyer to structure a deal in such a manner that reduces the potential for things to go wrong.
Capital gains taxes are another key concern. Some owners will try to move "half out there" to the second property to try to create some sort of principal residence on the recreational property, but that can also raise red flags with the government.
If you decide to own the property jointly, you also have to decide how it's structured - whether you own separate shares or own it jointly outright, or perhaps each child has a third interest in the property.