FSE Financial Group office tower
Home About Us Services Your Future Faqs Contact Us
Cottage Succession Planning


The family cottage is often one of the family’s most prized possessions and preserving it for the enjoyment of future generations is a prime estate planning objective. The cottage can be transferred to a spouse with no taxation. However, when the children inherit the property there can be a substantial tax bill. The family cottage is capital property and capital gains tax is due on the appreciated value. With proper planning, your clients objectives can be realized:

  • Family cottage is inherited by one or more children
  • Capital gains tax is paid without selling or mortgaging the cottage
  • Children not inheriting the cottage receive their fair inheritance

Your client establishes an insurance policy with the insurance amount at least equal to the projected tax payable at life expectancy. The policy is to provide tax-free insurance proceeds to offset the tax liability on the cottage capital gains and to provide additional estate assets if desired for a fair inheritance to children not inheriting the cottage. The plan is joint last to die, assuming that the surviving spouse inherits the deceased spouse’s assets and therefore the capital gains tax liability is at death of the surviving spouse.

The recommended insurance plan is a Universal Life policy – increasing insurance pattern with level insurance costs. Deposits are dependent upon the client’s financial circumstances. It is recommended that feasible deposits cease before retirement age so that insurance costs thereafter are withdrawn from the UL Account value. That way, your client is taking advantage of the tax-preferred status of UL investments to pay the insurance cost on a before-tax basis. The beneficiary options are payment directly to the heirs, or to the deceased’s estate if needed to provide estate liquidity to pay the tax. Keep in mind that insurance proceeds received by the estate are subject to provincial probate fees.

    Ideal Client
  • Owned cottage for many years, perhaps inherited from parents
  • Market value of the cottage is considerably higher than the purchase price
  • One or more adult children also enjoying cottage use
  • Wishes to conserve current assets for inheritance or does not have funds to pay potential capital gains tax
    Suggested Approach
  • For a couple who have owned a cottage for many years:
    Are you aware that there is a very large tax liability building up in your estate? Do you know that up to 25% of the appreciation in the value of your cottage must be paid from your estate as capital gains tax when your children inherit the cottage? There is a way to pay the tax and still keep the cottage in the family.

For more information on how to personalize based on your own situation contact FSE Financial Group Broker at 403-253-7007

Copyright . FSE Financial Group Inc.