Example
If a cottage purchased 30 years ago for $60,000 has grown in value to $260,000, then the capital gains tax owing upon death of the owner or sale of the cottage today would be $46,000 assuming a 50 per cent capital gains inclusion rate and 46 per cent marginal tax rate, excluding any disposition costs.

Your Options
You can structure your affairs concerning the cottage in several ways. You could transfer the ownership to a “trust” which could be used to settle such issues as joint ownership, rules on use and maintenance of the cottage, therefore providing further planning opportunities and delaying decision of ownership until some time in the future. However, trusts are subject to the “deemed disposition” rule every 21 years for capital assets within a trust. This means that every 21 years, either the trust or a beneficiary of the trust must pay the capital gains tax on any increase in the value of the cottage.

Most families simply leave the cottage to all the children equally. In this case, it’s good practice for the children to complete a buy-sell agreement when they take ownership of the cottage. This will establish the terms and conditions necessary for an efficient, equitable sale of the cottage, whether it be sold on the market or to each other.

Another way to avoid problems associated with sharing the cottage is to leave it to one child, while leaving assets of equal value to the remaining children. In this case your will should address the payment of the taxes.

Possible Solutions
Which ever option you choose, you should consider how the taxes will be paid.