Originally Published in the May/June 1996 issue of The Outfitter Magazine.
You have saved and slaved for the past twenty or more years to acquire a second property that your children will one day inherit. You do this out of concern for their future, so why leave them with the big tax bill that Revenue Canada will send them when they acquire their inheritance?
It used to be that there was a $100,000 lifetime capital gains exemption one could use when a second property was sold or inherited, but not anymore. This leaves you with two solutions for when you pass the property on to your family.
Transfer the Tax Burden with the Property
One option is to sell the property to your children now, taking back a “note payable” on demand for the fair market value of the property. This option leaves you with access to the property unless the note is paid off by the children. Also, you may have to show this note payable as a capital gain, therefore pay taxes.
The other option is to put the property “in Trust” with the children as beneficiaries therefore putting any further tax liabilities on the beneficiaries.
The catch with this option is that with the 1996 Budget, this Trust is only valid for 21 years, so the assets should be distributed to the beneficiaries prior to the 21st year.
Cover the Cost Now
Protect your beneficiaries from having to pay the taxes by purchasing a simple life insurance policy sufficient to cover those costs. A great product is the “Last to Die” also called a “Joint and Last Survivor” policy, as the surviving spouse will not be taxed when acquiring any assets.
With a little foresight, your children will be able to enjoy the legacy you worked so hard to leave them without the burden of a tax bill.
For further details, please contact your Northern Ontario Tourist Outfitters Group Representative:
Marc R. Brazeau
403-273 Third Ave.
Timmins ON P4N 1E2