Toronto chalets are hot and heating up further. Moving to cottage country has mot only become fashionable, but is one of the feasible ways for younger people to own property without the massive price of what a place in the city would cost. However, if you have children and you plan on keeping your cottage to pass on to them, it is wise to consider certain very important things first.
Do your children even want the cottage?
Are they willing to put in the work and pay for the maintenance that it will require?
Are their spouses willing partners in this enterprise?
The best way to determine whether passing on the family cottage is worth the trouble it will take is by having an open and honest conversation with your children. It could very well be that they live out of town and may not foresee trekking out to use a country place after you are gone. It could be that only one of your children is even interested in assuming the responsibility of the cottage at all. It could also very well be that none of your children want to put in the time and effort of taking it over.
However, if there is a child who wants to take it over, then it is necessary to make the inheritance fair. Ensuring an equitable inheritance would require an evaluation of the property and then getting an evaluation done of your entire estate. If your cottage is worth more than your estate, then the child who gets the cottage will have to pay your other child the difference in value. For instance, if the cottage is worth $800K but your estate is only valued at $720K, then the child who inherits the cottage would need to pay $80K to their sibling to make the inheritance fair. But, what if the child with the cottage doesn’t have the money to pay their sibling back? Will the other sibling be okay with a payment plan? Would the sibling inheriting the cottage even want to go into debt to keep the cottage?
Then there is the transfer tax that will have to be paid on the appreciation of the cottage from when you purchased it to when it is transferred to your children. If you bought the cottage for $100K and it now worth $800K, then there will be nearly $250K in tax to pay out.
As you can see inheritances can get very tricky. However, a good tax accountant can help you sort through the red tape if you do choose to go the route of willing the cottage to your children.
Otherwise, you can always sell it and divide the money equally between all of your children, with little fuss.
Do your children even want the cottage?
Are they willing to put in the work and pay for the maintenance that it will require?
Are their spouses willing partners in this enterprise?
The best way to determine whether passing on the family cottage is worth the trouble it will take is by having an open and honest conversation with your children. It could very well be that they live out of town and may not foresee trekking out to use a country place after you are gone. It could be that only one of your children is even interested in assuming the responsibility of the cottage at all. It could also very well be that none of your children want to put in the time and effort of taking it over.
However, if there is a child who wants to take it over, then it is necessary to make the inheritance fair. Ensuring an equitable inheritance would require an evaluation of the property and then getting an evaluation done of your entire estate. If your cottage is worth more than your estate, then the child who gets the cottage will have to pay your other child the difference in value. For instance, if the cottage is worth $800K but your estate is only valued at $720K, then the child who inherits the cottage would need to pay $80K to their sibling to make the inheritance fair. But, what if the child with the cottage doesn’t have the money to pay their sibling back? Will the other sibling be okay with a payment plan? Would the sibling inheriting the cottage even want to go into debt to keep the cottage?
Then there is the transfer tax that will have to be paid on the appreciation of the cottage from when you purchased it to when it is transferred to your children. If you bought the cottage for $100K and it now worth $800K, then there will be nearly $250K in tax to pay out.
As you can see inheritances can get very tricky. However, a good tax accountant can help you sort through the red tape if you do choose to go the route of willing the cottage to your children.
Otherwise, you can always sell it and divide the money equally between all of your children, with little fuss.
