Who Gets the Cottage?

Inter-generational Wealth Transfer, what does it mean?

Generations of Canadians have enjoyed visits to the family cottage, not thinking about what might happen to the treasured tradition is the owners should pass away. How will the property pass to the next generation? Will the cottage, investment property, or other major asset be saved and shared among family members in the future? The question needing to be asked is not who will get the cottage, but who can afford to pay the tax on the property once inherited so it won’t have to be sold off, and how can that tax burden be lessened?
Inter-generational wealth transfer is essentially estate planning with a specific goal of effectively leaving major assets such as properties to your beneficiaries and heirs. Consider the legacy you plan to leave to family, and ways to avoid excessive taxation for your loved ones.


Using Permanent Life Insurance: an effective estate planning strategy

The insured asset transfer concept is an effective financial and estate planning strategy to manage future taxation. Using permanent life insurance has many benefits in this situation.

Permanent Life Insurance protection offers you:

  • Growth in a tax-advantaged insurance policy
  • This asset passes tax-free to the next generation or to your named beneficiaries
  • Beneficiaries can use the permanent life insurance death benefit to cover taxes on assets such as cottages or investment properties
  • You have the flexibility to change beneficiaries, or the amount left to each, as needed
  • Eliminate probate fees as death with a named beneficiary other than the estate
  • Equalize your estate among children and beneficiaries


If living on a fixed income, or planning for retirement, consider the option of using some non-registered assets to cover premiums on the permanent life insurance policy. Unlike investments that result in taxable growth, a permanent tax-advantaged life insurance policy allows accumulation of growth inside the policy, within certain legislative limits. The death benefit is paid tax-free and can often be more than originally thought possible. Consulting with your tax professional and financial security advisor is recommended to discover how using permanent insurance can work for your individual situation.


Tax facts

Did you know that often the largest burden on an estate can be the taxes owing on assets accumulated over time? While the Income Tax Act (ITA) allows the transfer of investments to a surviving souse, if applicable, this will only defer some of the tax burden. When the surviving spouse dies, taxes must be paid.

Did you know that registered assets (e.g., RRSPs, RRIFs) are subject to tax as high as 48% (varies by province) in the year the surviving spouse dies, while non-registered assets such as mutual funds, stocks, segregated funds, real estate (including the family vacation home) could also be taxable.

Did you know that at the time a taxpayer dies, the Income Tax Act considers the taxpayer has disposed of all capital properties whether depreciable or not, immediately before death, and had received proceeds equal to the fair market value of the property. The family cottage is subject to this rule.

Did you know if the value of the cottage has increased since acquisition, this increase is considered a capital gain, and one half of this gain is included as taxable income in the final tax return, resulting in a tax liability.


Equalize your estate with life insurance

A benefit of using personal life insurance in estate planning is the ability to equalize your estate among children or beneficiaries. Those who are able to receive the cottage can be provided for by leaving sufficient funds to each, to be able to cover taxes on inheritance of the property, and those who don’t wish to share in the cottage can receive an equivalent amount, from the death benefit of the insurance policy. Avoid a potential challenge to the will by heirs that may receive assets such as property vs. those who do not or could not manage the legacy.

Talk to your financial advisor today.


This newsletter contains general information only and is intended for informational and educational purposes provided to email newsletter clients of Ron King and Specialty Wealth & Financial. Some of the information and opinions contained in this newsletter are reprinted with permission from sources quoted. While information contained in this newsletter in believed to be reliable and accurate at the time of printing, Specialty Wealth & Financial does not guarantee, represent or warrant that the information contained in this newsletter is accurate, complete, reliable, verified or error-free. This newsletter should not be taken or relied upon as providing legal, accounting or tax advice. You should obtain your own personal and independent professional advice, from your lawyer and/or accountant, to take into account your personal circumstances.