Watching a beautiful sunset while sitting on the dock, spending the days splashing in the lake, cooking up a storm, and creating family memories that will last a lifetime…all of these are immeasurable joys. The sentimental value of your Muskoka cottage, contrasted with the monetary value and profit potential attached to it, makes for a tough decision when it comes to keeping it in the family, or selling it.
It’s often these personal feelings attached to any cottage that motivate owners to want to keep it in the family. However, this is not always a simple process. Here are a few tips to help you pass your cottage down to your kids or grandkids without all the hassle.
Know Your Options
When it comes to passing down the cottage, it’s important to know that you have options available and you will need to know which ones are best suited for you. Choosing the right option can help you avoid costly land transfer taxes or capital gains, and hopefully avoid any unnecessary family disagreements.
Hold a Family Meeting
Will you be passing your cottage to your children now, or will the transfer happen upon death? Sure, it’s a morbid topic, but an important one when you own a cottage. Perhaps your cottage will be transferred to your partner or spouse first, or directly to your children. Whatever the case, it’s important to remember that second homes, cottage and other vacation properties are considered to be taxable assets and are thus subject to capital gains taxes. As such, if both you and your spouse are deceased, your children will have to pay the capital gains taxes – usually within a year. With the ballooning value of cottages in the Muskoka area, this could translate to a hefty financial burden for your children, often running into the hundreds of thousands of dollars in many cases. There are also probate fees or estate administration fees involved when a property is willed to an individual that will need to be paid from the estate.
Discussing your cottage estate planning as a family is the best way to ensure everyone is on the same page. It’s also a critical step to mitigate any potential misunderstandings. When discussing the plans for the family cottage, it’s also important to be honest about your wishes and encourage the rest of your family members to also be open and honest. If, for example, one of your children is not interested in the cottage, has plans to move across the country, or cannot manage cottage ownership financially, it’s important that everyone is aware so that your estate planning can take this into account. Cottages cost money even after a mortgage has long been paid; the taxes, utilities, appliances, maintenance and unexpected repairs can really add up.
Put it in Writing
Having a legal will is an important way to ensure that your beautiful cottage and your family’s plans for the cottage are protected. Once you have discussed your strategy and wishes with your family, and investigated the options available to you, it’s important that this plan is accurately reflected in your last will and testament.
As discussed in our previous blog focusing on DIY wills, creating your will with the help and guidance of a lawyer will ensure that your will is legally binding. The last thing you want is your assets being held up in the judicial system for months, sometimes years, on end. Working with a lawyer who specializes in real estate law is highly recommended, as they provide further advice and guidance regarding your cottage succession plan to ensure that your family cottage – and your family memories – are protected for future generations to enjoy.
Want to keep your Muskoka cottage in the family, or want to buy one to start enjoying now? Our team at Ares Law can help you make this process so much easier. Contact us today by calling (705) 645 – 8743.
