Many Albertans have fond memories of spending long summer days at the family cabin with parents, siblings, cousins, grandparents, and aunts and uncles – and their intention is usually that future generations will be able to enjoy this family cabin experience as well. As a result, passing on the family cabin is often a priority when creating an estate plan. Unfortunately, complications may arise, both tax and otherwise, that can create challenges.
Whether you decide to transfer the cabin while you are still living or as part of your children’s inheritance, capital gains tax will be owing to the extent of any increase in the value of the property. Some people try to get around these issues by listing their children’s names on the title to the property, but this too can create significant financial and emotional issues for families.
Some of these issues are as follows:
- If someone in the family divorces, a portion of the cabin property’s value may be owed to the ex-spouse;
- If someone in the family goes bankrupt or is sued, the family cabin could be at risk if that person was on title;
- Listing a child on both the cabin property’s land title and their primary home may result in additional tax liability;
- If someone on title dies, then you may owe their estate a portion of the cabin’s value;
- If someone on title, or a group of individuals on title decide they want to sell the cabin property, this can make it very difficult for those who want to continue to enjoy the family cabin;
- Children may have very different ideas about the upkeep of the property and the use of the property.
Fortunately, there is an excellent estate planning tool that can be used to ensure that future generations will continue to reap the rewards of time spent with family at the cabin! By putting your cabin into a trust, you can avoid many of the above-noted risks.
A trust is a private legal entity that owns the asset on behalf of the beneficiaries. The asset is held by the trust so if a beneficiary were to get divorced, declare bankruptcy or be sued, the cabin would remain protected. Further, the trust can be completely customized to meet your family’s goals and needs. For example, it can set out if children can ever sell the cabin and how the cabin can be used. A trust can also be updated and modified over the years as your family grows.
To defer taxable capital gains, an estate freeze can be implemented along with a trust. This permits the family cabin to be passed on to the next generation in the most tax efficient manner available.
We can help you to prevent future family discord and excessive taxation by implementing strategic solutions such as a trust. Contact our office today at (780) 458-8228!