Cottages are more than the materials they are made of. They are places where families and friends escape as a refuge. They are havens where those groups celebrate each other, have fun and create stories that last a lifetime.
It’s because of this emotional investment that the forced sale of a cottage owing to tax burdens, family strife and other factors can infinitely compound stress and grief. Fortunately HUB International has partnered with leading insurance companies to offer the HUB Cottage Life Insurance Policy - a way to help protect your property for future generations.
Because of the structure of the Canadian income tax régime, Canadians only owe capital gains taxes when selling or inheriting a second residence – such as a cottage. This means inheriting a family cottage from a loved one can come with a steep price tag. HUB’s cottage policy is an easy and affordable way to insulate your family from the burden of those capital gains taxes.
For example, let’s say that Grandma and Grandpa built a log cabin in the 1920s. In 1972, the property value was evaluated in accordance with the new law and priced at $300,000. At the end of that year, Grandma and Grandpa pass away, handing the cabin down to their only child.
In the ensuing decades, Grandma and Grandpa’s sole heir makes additions and upgrades to the property. He or she dies, leaving three children to split the asset. The cottage is revalued again and – because of the family’s investments and a boon in the housing market — the property has increased in value to $600,000. Even after deducting expenses related to home improvement, a serious amount of money is owed to the government one way or another. In this case, the three children have to make the heartbreaking decision to sell a valuable, emotional asset because they can’t afford to pay the taxes.
In another version perhaps one of the children wants to retain the cottage but can’t shoulder the tax burden alone. The other two have the money but no desire for responsibility. This is a different kind of tragedy that is no less disconcerting. In a circumstance like this, a Cottage Life Insurance Policy could make a real difference. Upon the death of a cottage owner, a traditional life insurance policy is paid out. But within that policy, money is provided for paying capital gains taxes on the property, reimbursing other family members for their shares, or both.
Many people assume that the cost of such a policy would be astronomical. But in fact, the cost of coverage is just one or two percent of what the eventual need will be. HUB’s experts can help determine the appropriate amount of coverage factoring in the value of the home, the estimated tax burden, and the wishes of the inheritors – sell, retain ownership, etc.
The psychological trauma of having to part with a family cottage due to financial burdens is one that families can spare themselves from enduring. Education and awareness are important – as is a conversation with your HUB expert. With the summer cottage season quickly approaching, it’s a good idea to make cottage succession plans part of the itinerary. Within the confines of your happy second home, develop plans to protect that joy for the next generation.
HUB International’s team of brokers has extensive experience guiding clients through succession planning and real estate concerns, and can help you determine the right amount of coverage for your family’s cottage.
