Yesterday in Winnipeg it was 30 degrees Celsius and for the most part the skies were clear and sunny. For readers not from Manitoba it is one of the best kept secrets that we have amazing weather during the summer months. Our summers are beyond compare and don't listen to anyone who tells you that our provincial birds are mosquitos – a few bites rarely hurt anyone.
With our beautiful summers, many of our clients and readers will be visiting their cabins enjoying some quality family time, sipping coffee, wine, and beer while getting outdoors. In many cases when I am dealing with clients, their cabin is their most important asset, or at the very least, the most emotional. Why shouldn't it be? It's where your kids grew up, it's your sanctuary, it's where you spent holidays.
Every year, family cabins are essentially claimed by CRA in estates where owners failed to plan. So if you don't want CRA to own your cabin I have laid out a few steps for you to consider.
Step 1 – Ask yourself the question, 'do you really want to keep the cabin in your family?' This is a legitimate question which you should consider. Depending on what the answer is, your plan may change greatly. If you don't want to keep the physical property, the planning would lean towards minimizing tax and passing on more cash to your heirs. This can certainly be the simpler and cleaner path, but this is not what most people want.
Step 2 – Have a discussion with your family If you want to keep the property in your family as most people do, then the next step is to communicate this with your family members. You should never assume your children or family want to inherit the cabin; I cannot stress this enough. Having an honest conversation about who wants to own the cabin and what that responsibility entails is important in determining the right course of action. I would recommend that you go into this conversation with an open mind and be ready to listen to everyone at the table. If only one member is interested, then planning can be a little simpler. But if there are multiple people interested, then then the next step is often creating an ownership agreement.
Step 3 – Ownership agreement (if necessary) An ownership agreement should be put into writing and it should stipulate everything about the use and maintenance of the cottage. Here are a few things I would consider: Who wants to own the cottage? Who wants to use the cottage? (this is different than ownership) How often does each family member want to use the cottage and when How are you going to create a fair system for determining when and how often someone can use the cottage? Will the cottage be sold or gifted? If sold, who has the financial ability to pay?
Who is going to do the work like paying bills, mowing the lawn, getting the place set for changing seasons, maintenance issues, security and cleaning? Who has the financial ability to maintain the expenses and maintenance of the property? What are the financial differences between potential family owners? If you have one beneficiary that is financially well-off wanting renovations, new appliances and more recreational toys, how will that affect another family member that is not as financially well off?
I understand that these are pretty in depth conversations and they could be very emotional, but if you think that having a frank conversation about the cabin sucks the fun out of it, just wait until your children are forced to sell it while grieving the death of a parent or family member. Once you have had the discussions needed and have come up with what you would like to see and how it will work in the future, now comes the financial and estate planning aspect.
Step 4 – See a professional As it is with any important asset in your life I would recommend that you seek professional advice on what the ramifications and costs may be, for what you're looking to accomplish. From there a professional can recommend strategies which will limit and possibly eliminate some of those costs. At Endeavour Wealth we always recommend specialized advice because that way we can ensure that all the little (and potentially costly) details are taken care of.
This is one of my favourite times of year and I certainly wish all of our cabin goers a great summer. Enjoy it with your families and take the time to enjoy the moments for yourselves. But at some point, this summer, take some time to think about the future as well, sit out on the dock and consider the future of your cabin. If you haven't done your planning already, it's time to stop winging it. Hoping for the best is not a strategy that will be successful.
- Grant White, CIM, CFP
Grant White is an award-winning Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.
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