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Passing the cottage onto the kids? Consider four things

For many, the family cottage is passed down through several generations. However, difficulties may arise when the actual ownership of the property passes from one generation to the next. The transfer may be subject to capital gains tax if the property passes to a child or grandchild.

“Transferring ownership of cottages or other recreational properties is a particular challenge today, as the value of recreational properties has been rising,” says Patricia Lovett-Reid, Senior Vice President, TD Waterhouse. “Your heirs could be forced to sell the property just to pay the taxes. If you will be in a position to transfer property to the next generation, it’s important to start planning today.”

Lovett-Reid recommends people consider the following:

Open the discussion -- Speak to your children about whether they want to keep the property and share in its upkeep. This is a very important step, as the lifestyles and financial resources of your children may differ.

Expanded estate planning -- If one child is not interested in the property, you may want to think about equalizing that child’s share of your overall estate with other assets.

Hold the property in trust -- One way to possibly save on tax and retain control of the property is to create a testamentary trust in your Will, to hold the property in trust for your children. Be sure to advise your children of your decision.

Choose your trustee carefully -- Given the complex nature of a trust, think carefully about the selection of an experienced trustee to administer the trust.

“It really pays to talk to your financial advisor about these issues,” concludes Lovett-Reid. “They can ensure that you get the professional help you need to avoid common pitfalls and keep the recreational property in the family.”