Preserving Your Beloved Cottage:
Strategies for a Timeless Family Legacy


Gazing at the rhythmic dance of water against the weathered dock as the sun gracefully descends over the placid lake. Offering glasses of sweet nectar to elated children on a sweltering summer day. Savouring the velvety warmth of coffee on a veranda embraced by a symphony of melodious birdsong and whispering foliage. Cottages serve as sacred canvases upon which extraordinary moments unfurl. Consequently, it becomes imperative to meticulously devise a blueprint to bequeath this haven to future generations, ensuring that your offspring and their progeny may safeguard the cottage’s legacy and continue to weave a tapestry of timeless memories.

Many individuals mistakenly assume that merely leaving the cottage to their adult children through a will guarantees its preservation within the family’s embrace. However, the predicament lies in the fact that a secondary property, such as a cottage, is subjected to taxation upon the owner’s demise as if it were sold. Should the value of your cottage have escalated since its acquisition, this could entail an onerous capital gains tax burden. Furthermore, the longer you have owned and continue to possess the cottage, the more opportunity it has had to appreciate in value.

Conceivably, your estate may boast sufficient assets to fulfill the tax obligations, albeit potentially requiring the liquidation of investments during unfavorable market conditions. However, if this avenue proves inadequate, the inheritors would bear the brunt of the tax burden. Should the estate and/or the beneficiaries lack sufficient liquid assets, a distressing outcome looms— the potential necessity to sell the beloved cottage to settle the tax liability. Unquestionably, this is an outcome that one ardently wishes to evade.


Fortunately, by implementing straightforward strategies, one can deftly manage the tax liabilities, thus ensuring that future generations may revel in the cottage’s embrace for countless epochs to come. Herein lies a quartet of potent methodologies to preserve the cottage’s inheritance within the family:



Strategy 1: Joint Ownership

 Empowering adult children with joint ownership of the cottage allows you to confront the burgeoning capital gains before they become an insurmountable challenge, culminating in a tax-free transfer upon your demise. This legal framework, known as “joint tenants with right of survivorship,” grants your children co-ownership during your lifetime, with the title seamlessly transferring to the surviving heirs upon the passing of any owner. While you will be liable for the tax on the transferred ownership portion, judicious structuring exempts the other owners from tax obligations upon your demise. Furthermore, designating the cottage as non-estate property spares it from probate fees, where applicable. It is paramount to consider your comfort level in relinquishing full ownership and engage in open discussions with family members regarding future decisions pertaining to the property, be it repairs, renovations, or potential sale.


Strategy 2: Personal Trust

Establishing an inter-vivos trust during your lifetime retains management and control of the cottage in your hands, while the trust assumes ownership. Capital gains tax would be incurred up to the point of transferring the cottage into the trust. However, subsequent capital gains would be shielded from taxation for a span of 21 years. At the culmination of each 21-year cycle, a deemed disposition of the cottage would transpire, accompanied by any ensuing tax liabilities. Similar to joint ownership, trust assets exist independently of your estate and are exempt from probate fees. While setting up and maintaining a trust incurs associated costs, the realm of customization offers ample opportunities to leave enduring instructions pertaining to the cottage beyond your lifetime.


Strategy 3: Life Insurance

Rather than seeking to diminish capital gains tax, procuring permanent life insurance provides a means to cover this impending liability. A “joint last-to-die” policy ensures that the death benefit remains tax-free for beneficiaries upon the demise of the second parent, coinciding precisely with the period necessitating funds for tax payment. The degree of precision in matching the projected tax liability or acquiring additional coverage to encompass other taxes and costs upon death rests in your discretion. Certain permanent life insurance policies even provide potential growth of the death benefit over time. Nevertheless, it is worth noting that the cost of life insurance increases as one advances in age. Consequently, it may be prudent to assign the responsibility of premium payments to adult children, as they will ultimately reap the benefits of the policy.


Strategy 4: Principal Residence Designation

Suppose you possess a condominium in a bustling metropolis and a cottage ensconced in the countryside, with the latter experiencing a far swifter appreciation in value. In that case, designating the cottage as your “principal residence” can bestow the advantages of the principal residence exemption from capital gains tax upon its sale or your demise. Generally, for a property to be claimed as a principal residence, it must serve as the ordinary abode of the taxpayer, their spouse/partner, former spouse/partner, or child. Additionally, the Canada Revenue Agency delineates other regulations. Although tax must be paid up to the point at which the cottage is declared the principal residence, this strategy, tailored to your unique circumstances, effectively obviates taxes due on the cottage upon death, while alternative strategies can address tax obligations related to the condominium.


Rather than neglecting planning in favor of skipping stones, cottage owners should meticulously deliberate their aspirations for the property. Diligently preserving receipts for all repair and renovation expenses serves to reduce the capital gain burden associated with the cottage. Collaborating with a knowledgeable advisor to seamlessly incorporate the cottage within the broader estate plan assumes paramount importance. Strive to bequeath to your children and grandchildren a legacy that transcends ephemeral memories. Through meticulous planning, they shall forever revel in the timeless embrace of the cherished cottage, weaving countless remarkable moments that traverse the tapestry of future generations.