A Look at Timely Financial Issues

Contributed by Edvard Ryder. Do you have fond memories of family summer vacations at the cottage spent swimming in the lake, building sand castles on the beach, or fishing on the dock? Do you envision your children and grand-children making similar memories there for years to come, even after you’re gone?
If your wish is to pass on your recreational property to your children (or someone other than your spouse), keep in mind there are tax implications. Half of the capital gains on a cottage or vacation property are included in your income. Depending on the province you live in, the taxable portion could be taxed at up to 50 per cent. You might not be in the highest tax bracket, but the impact can still be significant.

 
You can’t avoid capital gains tax by selling your home and making your cottage your primary residence. And selling the cottage to your children for a token amount of $1 won’t help either. But there are things you can do to help minimize taxes on your estate.

 
Here’s one way. Let’s say there’s $50,000 of tax owing from the capital gain on your cottage when your children inherit it. If you had purchased a $50,000 last-to-die life insurance policy with your spouse, your children would get a $50,000 tax-free death benefit after both of you pass away. That money could be used to cover the tax on the capital gain.

 
Another strategy is to buy a life insurance policy, and name a charity as the beneficiary. Because charitable donations can be applied against up to 100 per cent of your net income in the year of death, the donation credit from the death benefit could reduce or even eliminate the tax bill. The end result: your children, as beneficiaries of the estate, would take over the cottage without having to worry about selling it to cover the taxes.

 
These are only two of the options available. As a Sun Life Financial advisor, I can help you decide the best route to take and how much life insurance you need to protect the value of your recreational property. Everyone’s legacy will look different. I can help you tailor your legacy plan to address your unique goals and provide solutions for a tax-efficient transfer of your estate.

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