Keeping the Cottage in the Family

A country place is a symbol of relaxation, continuity in life, and family harmony. But when the topic of ownership succession is raised, that lovely spot can be transformed into a source of stress, uncertainty and family strife

Anthony Layton MBA, CIM August 2017

Keeping the Cottage in the Family | 1 Letter from Anthony Layton

Cottage succession, along with other estate planning issues, is among my professional specialties. After decades of helping families confront and solve the cottage-succession problem, I decided to put pen to paper and document this knowledge. The result is Keeping the Cottage in the Family, a detailed review of everything a cottage owner should consider when contemplating what happens when it’s time to pass on the property to the next generation.

A succession plan can only be produced with the help of seasoned professionals who are familiar with the many pitfalls common to this challenge. I would like to thank Tom Burpee, Morris Jacobson and Matthew Elder for sharing their considerable expertise in the preparation of this article.

Sincerely,

Anthony Layton MBA, CIM CEO and Portfolio Manager, PWL Capital Inc. Table of Contents

A responsibility as well as a privilege ...... 6 The taxman must be paid, one way or another...... 12 Get a head start ...... 7 Owning through a trust ...... 12 Planning closer to the event...... 8 Share-ownership agreements ...... 13 The capital gains tax problem ...... 9 Use of a nature conservancy ...... 14 Use the exemption, or pay the tax? ...... 9 Conclusion ...... 14 A couple with two residences ...... 11

Anthony Layton is a founding partner, Chairman, CEO and portfolio manager at PWL. Knowing that trust is essential to building strong relationships with his clients, he takes great care to understand their needs before providing comprehensive analyses and sound advice. His 35 years in wealth management have provided him with an in-depth knowledge of portfolio principles that he applies for the benefit of each of his clients.

Since 1980, Tony has been committed to the establishment and growth of wealth management in Canada through independent and conflict-free financial services firms. Recently he has contributed to the establishment of GAIA (The Global Association of Independent Advisors), an international association of firms dedicated to fiduciary excellence. He is a past National Chairman of the Canadian Association of Financial Planners (CAFP, now Advocis).

Tony volunteers his time and energy with a number of organizations, including McGill University’s Desautels Faculty of Management, the Nature Conservancy of Canada (NCC), the Hillside Tennis Club, and the Anglican Diocese. He enjoys spending weekends with his family at his cottage in the Laurentians and plays a very active role in the Lac Brulé Owners Association. Tony is also a material shareholder and a Director on the Board of Agile IP, a VoIP phone system provider.

[email protected] www.pwlcapital.com/layton-guay

Keeping the Cottage in the Family | 3 It’s a place full of good times and fond memories, but the fun often ends when deciding what to do with it after your death, or when you are unable to cope with it during your later years Determining the fate of the family • When a property should cottage, chalet or whatever you be transferred to the next call your second home represents generation perhaps your biggest estate- planning challenge. Much as you • How the property is valued for love weekends and vacations at transfer purposes the lake, ski chalet or the farm, determining who will eventually take • Determining capital gains tax over the place after you die or can no and how best to pay it longer look after it is likely to be an angst-ridden experience. • Using the principal residence designation for a second home We somehow believe in our hearts that things will work out and everyone • The benefits of trust ownership will continue to enjoy the cottage’s pleasures. But it’s a fact that parents • Shared ownership: How and children/heirs rarely give much to create a fair and flexible thought about what will happen to agreement the place until the situation becomes critical, either when mom and dad • Possible use of a nature no longer want or are able to use the conservancy place, or when the last parent dies. This report is intended to provide There are many issues to consider the necessary background that will when assessing a cottage property’s enable you to bring all relevant issues future, a task made all the more to the table when discussing the difficult by the fact no one situation is cottage situation with your family. It the same. There is no one-size-fits- also will allow for a more efficient and all solution. However, it is possible thorough communication with to identify typical situations and your financial planner. A planner a range of solutions. We will first experienced in cottage succession address the fundamental issue of and other estate planning matters is whether someone will actually want an invaluable partner in your quest – or be able – to take on the place, for a fair and solid solution. To this especially if various circumstances end, he or she will draw upon the have changed. Assuming the answer expertise of accounting and legal is yes, we’ll go on to examine: specialists in this area, co-ordinating what is actually a project that encompasses a range of financial and legal tools.

Keeping the Cottage in the Family | 5 A responsibility as reasons of career or marriage. When well as a privilege “Leaving cash also avoids the place ceases to be a practical potential problems of children weekend destination, its overall not getting along, children appeal is diminished. separating, children with The first step is to ask your children unequal wealth – only some of Time: Retired parents have lots of or other heirs about their future whom can afford to own part time to look after the property; their commitment to the cottage. You’ll of the property – and children children normally do not. likely learn they all want to take it on, moving to the United States or have a piece of it. Or at least they after they become owner Marriage: Your daughter might think they do. [which would trigger new tax- love the place, but your son-in- planning challenges],” says law has a family cottage elsewhere A cottage is a flashpoint for emotions. Tom Burpee, an accountant or is strictly a city guy. Or it’s a The longer it’s been in the family, the specialized in taxation and matter of financial priority, where greater the attachment. Many of our estate planning. the spouse would prefer spending fondest memories of growing up are money on the primary residence at the cottage. It’s where we took Such potential developments can and accompanying lifestyle than on our first swimming strokes, where lead to a new round in the cottage- rebuilding boathouses or adding we learned to play Monopoly, where succession debate. insulation to the old family house’s we learned how to paddle a canoe attic. or hammer a nail, or where we first So before taking everyone’s wishes got on skis. It may also be where we at face value, here are some things Surroundings: There’s more spent a lot of time with our grand to consider before moving forward: than one story of a once-peaceful parents. We want the cottage to lake now overrun with “personal be part of our lives forever, and our Wealth: The children as individuals watercraft” or an isolated farm now children’s too. may not be as wealthy as their crowded by mass development. In parents and grandparents. This recent years, some major lakes in But things can change, including could be due to less lucrative eastern Canada have been “closed” the cottage experience itself. In earnings or simply the result of family entirely to swimming and boating fact, you might find that real-world inheritance being watered down due to environmental concerns. In circumstances have reduced from one generation to the next. In short, the cottage experience might the property’s appeal to the next many cases, when push comes to not be what it used to be. generation. You and your offspring shove, heirs will recognize they need may have become so consumed an inheritance of cash, not property. New zoning restrictions: Changes by who gets the cottage that you to local laws and building codes haven’t stopped for a moment Ownership costs: Further may restrict how the property can to honestly evaluate everyone’s tightening the financial screws are be used going forward, which may interest in the place and the ability or skyrocketing property valuations deter others from wanting to take on commitment of one or more heirs to and accompanying tax increases. It the place. take it on. costs more to have a tree cut down or have a long driveway plowed. It’s amazing how one’s view of the In fact, you might find you don’t Plus it costs much more to gas up family cottage can change once a user actually have a cottage succession the car to get there, not to mention is forced to contemplate the specific problem. Cash proceeds from a sale running the motorboat. realities of becoming an owner. As are much easier to divvy up than a often is the case in our society today, piece of real estate. Proximity: It’s not unusual for one the reality check comes in the form or more children to move away for of money. In short, expenses – both

6 | Keeping the Cottage in the Family routine maintenance and capital to them soon after buying it. Owning improvements – were not part of a cottage in the name(s) of children the kids’ or other heirs’ cottage or grandchildren defers all or most of experience. the future capital gains tax liability on the property’s expected gain in value by a full generation or longer. Under Get a head start such an arrangement, it is common for the sale documents to specify that the parents or grandparents will retain unlimited access and use during their The traditional advice to owners lifetimes. While this can be achieved of cottages and other recreational through a letter of agreement, a property is to plan for the future more formal legal structure is joint as soon as possible. In addition to tenancy with the right of survivorship, clearly identifying the responsibilities in which the property transfers to the of ownership and determining who joint owner upon death. This has the really wants the cottage, you will added benefit of bypassing probate have to address crucial and often fees normally payable in provinces complex taxation considerations, except Quebec, where such fees do in particular how to minimize the not exist. capital gains tax that will be payable upon the future transfer or sale of This, of course, assumes the next the property. generations will be able to – or even be life expectancy ahead of you and interested in – owning and using the intend to keep the place indefinitely. Cottages, like most real estate, property later on. While immediate or In fact, keeping the assets in the almost always rise in value over the early transfer to a later generation might original owner’s name – and leaving it years, and often produce a sizeable produce an early solution to the “who to the heirs in the surviving spouse’s profit when the time comes to sell or gets the cottage” conundrum and will – is often seen as a simpler and transfer the property. One half of such provide a lengthy tax deferral, you might safer alternative to shifting ownership profits are subject to capital gains tax be jumping the gun when making such to a younger generation. at the seller’s/transferor’s marginal tax a momentous decision. Who’s to know rate. There are two exceptions. whether a young son and daughter will There are caveats to simply leaving still be living within practical range of the the property to your spouse • Capital gains tax is not payable cottage when they grow up and have and assuming the property will if the property is designated as families of their own, or if their future eventually pass to your children or your principal residence. lifestyle preferences would include grandchildren. For one, a will can cottage life? be changed. And if a widow or • If the property is transferred widower remarries, depending on to your spouse , the tax What’s more, if the transfer is not the will – and on family patrimony liability can be deferred until done within a few years after a laws and a marriage contract – there the spouse eventually sells or cottage is first purchased, in most may be property rights in favour of transfers the property. cases at least some capital gains tax the new spouse and it is possibility will have to be paid. By keeping the the children of the first marriage Some families tackle the tax bear right property in your name, capital gains could have their rights postponed or away and place the property in their tax can still be deferred for a very annulled altogether. Such problems children’s or grandchildren’s names long time – assuming you and your can be avoided through careful at the time of purchase, or transfer it spouse have many years of normal planning with a professional.

Keeping the Cottage in the Family | 7 Planning closer to best – or the worst – time for this siblings. On the dark side, however, to occur. The provisions in the will waiting till death to sort out the the event dictate the property’s fate. If the property’s fate means you may have succession has been thoroughly many more people involved. At this discussed, consensus reached stage, the grandchildren’s interests and the circumstances of the in eventually using the cottage If you haven’t planned the cottage transfer carefully planned, the will are almost always a factor. And if succession in advance and now is simply the final act. But if nothing one of your children predeceases are facing the reality of having to do has been decided and the property you and they have children, then something, you may decide that the is lumped into the overall estate they normally are direct heirs, ownership status quo often is a good – with equal ownership awarded further complicating the cottage arrangement. This may be the case to each heir without discussion succession question. if the children will continue to use among everyone – there almost the place regularly, and the parents certainly will be some fireworks. It’s If the value plus tax liability exceed are able and content to continue the price to pay for procrastination an equal share of the estate, then the as owners, including covering the or avoidance of the subject. successor owner(s) will be forced to costs. But one or more of the kids buy out the siblings that have opted will have to take on the role of co- Unless all of the heirs can agree out of ownership. Should they not be ordinating the property’s upkeep, that they do, in fact, wish to share able to afford it, even with financing, including maintenance and keeping ownership equally – and everything then the property must be sold. This track of utilities and other services that comes with it, including is an extreme outcome that almost and ensuring the bills are in fact splitting use and expenses – a certainly will produce bitterness paid. And it is likely this new reality decision will have to be made between the would-be owner(s) and will force discussion of the issue of promptly. On the bright side, at the opted-out sibling. ultimate succession. least circumstances finally force each potential successor-owner Another significant problem with Often, the actual transfer of to confront the real prospect of co-ownership among people who ownership doesn’t take place until ownership. The result often is that might not have common views the last parent dies. Depending one or two of the children take on on the property’s use and future is on circumstances, this can be the ownership and “buy out” the other the ability of one co-owner to force unilaterally the sale of the property. For example, Quebec law gives a co-owner the right to force the partition of the property and thus requires the co-owners to buy out the exiting owner – even if it means selling the property to raise the cash for this purpose.

8 | Keeping the Cottage in the Family This means tax would eventually be Use the exemption, payable by the surviving spouse on the capital gain from the time the or pay the tax? property was acquired until it is sold, or transferred to a younger generation.

Capital gains tax can be escaped A bigger issue is whether it makes altogether if your country property sense to claim the cottage instead is eligible for the principal residence of a city home. The decision is exemption – and it makes sense to based on each property’s increase claim it as such. So before worrying in value since capital gains taxation about ways to defer capital gains was introduced more than 40 years tax, you first should evaluate the ago. The exemption normally should possibility of declaring the property be used for the property that is as your principal residence. While an showing the biggest gain on paper. individual (or a married or common- Traditionally this was the city home, law couple) may claim only one home but this might not be the case if the as a principal residence, in many country property is on prime land and cases you can choose between a city has been owned for decades. and country home. It’s fairly easy to meet the tax man’s definition of what A property can be designated a qualifies: the dwelling must have principal residence for any individual The capital gains been “ordinarily inhabited” by the year – or not. Thus it is possible to tax problem parent or relative during any part of a analyze historical values over time year for which the exemption is being and determine in which years it claimed. Normally up to one-half was advantageous to designate hectare (about 1.25 acres) of the land one house or the other as principal Once it has been decided who will surrounding the house is considered residence. However, this is a complex take on the cottage, you have to tackle part of the principal residence. process that requires a year-by-year the tax bear. As mentioned earlier, However, more land can be included review of both properties’ historical you don’t need to address this if you if it is considered to have contributed market values. The principal transferred ownership to a younger to the “use and enjoyment” of the residence designation decision is a generation years ago. But in the more residence. For example, it could be complex process, and should only typical situation where a property is argued that a few acres of additional be made with the assistance of your passed on during the parent’s senior land are essential to provide adequate financial planner, in conjunction with years or at the time of death, tax privacy, or are needed to provide road a tax expert and qualified real-estate planning is an urgent task that requires access to the house or access to the appraisers. the expertise of an accountant or lake from the house. lawyer well versed in this area. This decision on which home to claim cannot be made without doing A capital gain is triggered whenever a a thorough calculation of the capital property is sold, or deemed to be sold gains based on each property’s – such as on the death of the owner. acquisition cost (known in tax terms An exception is where it is left to the as the “adjusted cost base”) and its spouse, in which case it is transferred disposition value (the higher of the tax-free and the property’s original current fair market value or actual adjusted cost base remains in place. sale price). Be sure to do everything

Keeping the Cottage in the Family | 9 possible to calculate a gain that is price. This in turn will reduce the accurate and as low as possible. amount of the capital gain that is Remember, capital gains taxation exposed to taxation. was introduced on January 1, 1972, so if you owned the property prior to Even if you don’t have receipts then, the gain is calculated beginning from contractors or for materials on that date. used in various improvement projects, you’ll need to make a list It is relatively simple to determine the of everything you’ve spent on capital disposition value. The capital gains improvements. You must differentiate tax rules are ironclad when it comes between ongoing maintenance to reporting a property’s sale price and building improvements. For or transfer value. For arm’s length example, simply repairing a deck by transactions—where the buyer and replacing a few rotten boards might the vendor are not related—the sale be considered maintenance, while price is used. But for non-arm’s replacing or upgrading the structure length transactions—which is the to make it better or larger would be subject of this report—transactions an improvement. Renovations to the must always be based on the house aren’t the only expenses that property’s fair market value. The can be used to reduce the adjusted acquisition and disposition values cost base. You also can include those cannot be inflated or deflated to suit related to the property’s acquisition, your tax-saving needs. such as house inspection, realtor commissions, notarial and legal “Fair market value is what fees, land-transfer taxes, and utility counts and, as such, a connection fees. valuation of the property should be executed,” says If you made use of the maximum Morris Jacobson, a lawyer $100,000 capital gains exemption specializing in taxation and (which was available to individual estate planning, and partner taxpayers until February 22, 1994) with Spiegel Sohmer in to reduce an accumulated capital Montreal. gain on the property, don’t forget to include this in the calculation. Owners of capital property such as However, things get complicated real estate or stocks were allowed when determining the adjusted to “crystallize” any paper gains to cost base. The value of any capital the extent of their unused exemption improvements made during amount. Note that you cannot use ownership can be used to reduce this exemption retroactively; you the amount of the capital gain you must have completed a special form will report. While this work likely when you filed your 1994 income tax will have increased the property’s return. The capital gains tax payable value, you can apply the total value on the actual transfer of the property of improvements to increase its is based on the new adjusted cost adjusted cost base, thus creating base set at the time the exemption the equivalent of a higher acquisition was used.

10 | Keeping the Cottage in the Family A couple with two next generation. Their three children $820,000, while the cottage’s gain residences are all married with children of their is $620,000. In this case, it makes own. Real estate values have shot sense to designate the city house up in both their city neighbourhood as the couple’s principal residence and cottage region. from 1982 onward, and pay capital Consider the case of a couple that gains tax on the cottage transfer. purchased a city house in 1955 for For tax- and estate-planning (Had the city house been less, then $22,000 (see the accompanying purposes, the couple had a it would have made sense to apply table.) In 1964, they bought a cottage professional property evaluator the exemption to the cottage.) One on a large lake for $20,000. At the prepare appraisals on both half of the $620,000 gain on the beginning of 1972, the capital gains properties. The city house is now cottage is taxable. Given that the taxation system was introduced. By worth approximately $1 million and property is jointly owned by both that time, the value of the city house the cottage about $700,000. spouses, the $310,000 taxable had increased to $80,000, while gain will be split evenly between the cottage was worth $40,000. Both properties can be sheltered them. This gain is taxed at the In 1981, the rules for designating a from capital gains made between couple’s respective marginal tax principal, residence were changed the beginning of 1972 and the rates. The highest combined tax to allow only one principal residence end of 1981, with the husband liability would be about $155,000. per couple. The values of the two designating for tax purposes And decrease depending on the properties had leaped to $180,000 the city house as his principal couple’s taxation rates. (city) and $80,000 (cottage). More residence, and the wife designating than three decades later, the the cottage as her principal couple has decided to transfer residence. The unrealized capital ownership of the property to the gain on the city house, then, is

CAPITAL GAINS ANALYSIS (example only)

4-bedroom winterized cottage on large lake within 120 km of Montreal; 300 feet of lakefront

CITY COUNTRY

Cumulative Taxable Cumulative Taxable Value Value capital gain capital gain capital gain capital gain

1955 City house purchased $22,000

1964 Cottage property acquired $50,000 $20,000

1972 Cap-gains tax introduced $80,000 $40,000

1981 Dual principal residence rule ends $180,000 $80,000

1990 $350,000 $170,000 $85,000 $200,000 $120,000 $60,000

2010 $650,000 $470,000 $235,000 $350,000 $270,000 $135,000

2015 $900,000 $720,000 $360,000 $600,000 $520,000 $260,000

2017 Transfer of cottage property $1,000,000 $820,000 $410,000 $700,000 $620,000 $310,000

Tax @ 50% rate $205,000 $155,000

Keeping the Cottage in the Family | 11 The taxman must be Capital gains tax is payable by the Owning through paid, one way estate when a deceased person’s a trust final tax return is filed for the year of or another death. It is the responsibility of the executors to ensure that taxes and other liabilities are paid, even if it In almost all cases, it makes sense Often we hear of people “gifting” means selling off some of the estate’s for a country property to be owned the cottage to one of their children. assets to settle those accounts. directly by an individual. Direct No tax was payable, the story goes, A popular means of covering the ownership also can work for two because it was simply a gift. But this cost of capital gains tax at death is or more family members, assuming almost certainly is not a true story – to purchase a life insurance policy money is not a problem and there or if it is, it’s missing a final chapter with a benefit equal to an estimate of is consensus on how to enjoy and on the tax outcome. Most likely, the tax liability. However, this option maintain the property. The owners’ capital gain tax was, in fact, quietly should be considered earlier in life, names are both stated in the property paid by the parent when their tax as life insurance becomes more deed, and tax and utility bills related return was filed for the year of the expensive as you get older, and to the property bear the names ownership transfer. If they did not prohibitive in your senior years. As of all owners. However, problems and chose to ignore the transaction with other specific planning areas, can arise should a co-owner want for tax purposes, it’s likely that your financial planner will ensure out. While a good share-ownership sooner or later the tax man – having this option is pursued with the help agreement can allow for this visited your area’s land registry office of an insurance expert familiar with possibility, as well as lay out the rules – will come calling. Not only will you covering capital gains tax liabilities. of the game as to how the property be forced to pay the outstanding capital gains tax, you’ll have to pay a penalty as well as interest on the unpaid tax. Transfers of expensive recreational properties are a target area for tax department auditors, so it’s unlikely any significant transfer will go unnoticed by the Canada Revenue Agency or Revenu Québec.

For residents of provinces other than Quebec, legally structuring a property transaction as a gift or as a “$1 plus considerations” sale is sometimes considered as a means of escaping probate fees. These are a de facto estate tax charged by Ontario and other provinces except Quebec on the value of an estate as of the date of death. But, again, the only figure that will have any meaning to the tax authorities, in such transactions, is a property’s fair market values.

12 | Keeping the Cottage in the Family is shared and used, in some cases beneficiary must be analyzed based • A usage schedule that ownership by a trust or corporation on their province or country of recognizes prime periods based is a better alternative. residence, Morris Jacobson says. on weather or events.

A number of families have transferred Trusts generally are taxed at personal • An estimate of annual ownership of the cottage to a trust. taxation rates, and are able to maintenance and upkeep costs This creates a separate entity within make use of the principal residence and a formula under which which the property’s affairs can be exemption. However, a trust must the owners will pay for this. A conducted, under the direction of the pay tax on deemed disposition of current bank account should trust’s beneficiaries, who usually also the property every 21 years. Thus be set up and funded by the are named as trustees. The trust also provision must be made to pay owners to pay these bills. If the can hold a cash and/or investment tax on the amount of any capital family members do most or all of account from which expenses can gain from the time the trust took this work, there may be issues if be paid. This structure also can ownership to the 21st anniversary of there is not equal participation. provide a reasonable framework for the ownership transfer. the sale of the property should one • A plan for capital improvements. or more beneficiaries want out. Note If more than one person has a This must differentiate between that a transfer of assets to a trust stake in the property through any what is needed versus what will trigger a capital gain, taxable in of the above ownership formats is wanted. An ownership the hands of the transferor. Before and it is likely the various partners, agreement can suggest the setting up a trust, however, the beneficiaries or shareholders will property will be maintained in tax and legal implications for each not use the place equally, you can its current state, but eventually consider a fractional ownership or major work will need to be time sharing arrangement. However, done that is above and beyond this arrangement requires a detailed what is classified as annual document that covers the rights and maintenance and upkeep. For responsibilities of the users of the example, the roofing and siding property on an ongoing basis. will have to be replaced when they wear out. Ditto for plumbing and electrical fixtures. The Share-ownership nature and extent of necessary agreements capital improvements needs to be clearly defined. The owners might also agree that the house and their enjoyment of it would Regardless of ownership format or benefit from improvements equal or unequal participation, a beyond the status quo. So a properly set up shared-ownership capital-improvement plan also agreement should include at least could include such projects the following: as adding a screened porch or even winterizing a summer • How is the property ownership house. It might make sense to to be managed, and how will set up an investment account to decisions be made? fund capital improvements.

Keeping the Cottage in the Family | 13 • One half of the $620,000 gain be construed as environmentally gains tax would be payable on the on the cottage is taxable. Given harmful, such as swimming pool or disposition. In some cases, the NCC that the property is jointly owned use of all-terrain vehicles. These are has purchased land, but this is an by spouses, the $310,000 elements that a future owner might exceptional circumstance, as the taxable gain will be split evenly want to have the flexibility to enjoy. NCC has limited financial resources. between them. This gain is taxed at the couple’s respective However, some conservancy- An alternative is donating or selling marginal tax rates. The highest related servitudes/easements could the land to a local conservation group, combined tax liability would be actually boost the valuation, such as which has been set up by some about $155,000. And decrease anything that guarantees a view will lakefront landowners’ associations. depending on the couple’s be preserved or that trees cannot be Before considering a donation to such taxation rates. cut in a certain area, thus protecting a group, ensure the organization has privacy in terms of sightlines and been approved as a registered charity noise. Such restrictions likely would by the Canada Revenue Agency and Use of a nature be of appeal to almost any buyer. Revenu Québec. conservancy A conservancy servitude or easement may be set up through Conclusion the Nature Conservancy of Canada Families that are committed to (www.natureconservancy.ca) and long-term ownership of the cottage requires that a property meet certain property might want to consider ecological criteria. These and other Sharing the family cottage is a central placing a conservation servitude conservation agreements are used, issue when trying to determine (known as an easement outside according to the NCC, “to preserve cottage succession. But whether Quebec) on the property. This has wetlands, forests, prairies, rare sharing is the succession solution, or obvious environmental benefits, but, plants and animals, wildlife habitat sole ownership – and whether it be more important for estate-planning and scenic landscapes.” So beyond through direct ownership, a trust or purposes, depending on the nature reducing your tax bills based on the even a corporation – it’s important to of the servitude, it can be a means servitude, you must agree with the ensure your intentions are covered of reducing the property’s value – conservation aspect, which usually in your will and power of attorney and, in turn, result in lower capital means no further construction or (or “mandate of incapacity” in gains tax payable when the property other development, no subdivision Quebec). Take care when choosing eventually is sold or transferred. of the property, no cutting of healthy those who hold power of attorney trees, and so forth. Remember, or a mandate, and when naming an Perhaps more important, use of though, that a conservation servitude executor in your will. These often a nature conservancy and other is a perpetual contract and thus you are family members, but it also can servitudes/easements on the and your family must be completely be someone outside the family – property can result in a lower committed to the concept. but only if they are very aware of property tax bill each year. Examples the your unique circumstances. In of servitudes or easements that can A more extreme option is to donate any case, to reiterate the initial point result in a lower municipal valuation land to the NCC through its Eco- made in this report, make sure are restrictions on building upon Gift Program. Assuming the land is keeping it in the family is indeed the the property, such as limits on size, deemed by Environment Canada correct choice. design, location and use. Specific to to be ecologically sensitive, the a nature conservancy, servitudes/ full amount of the property’s value easements can exclude use or would qualify as a charitable installation of anything that might donation. Moreover, no capital-

14 | Keeping the Cottage in the Family This report was written by Anthony Layton, PWL Capital Inc. The ideas, opinions, and recommendations contained in this document are those of the author and do not necessarily represent the views of PWL Capital Inc.

All rights reserved. No part of this publication may be reproduced without prior written approval of the author and/or PWL Capital. PWL Capital would appreciate receiving a copy of any publication or material that uses this document as a source. Please cite this document as:

Anthony Layton, CEO and Portfolio Manager, PWL Capital Inc. “Keeping the Cottage in the Family”.

For more information about this or other publications from PWL Capital, contact:

The Layton-Guay Team 3400 de Maisonneuve Ouest, Bureau 1501, Montréal, H3Z 3B8 Tel 514-875-7566 • 1-800-875-7566 Fax 514-875-9611 [email protected]

This document is published by PWL Capital Inc. for your information only. Information on which this document is based is available on request. Particular investments or trading strategies should be evaluated relative to each individual’s objectives, in consultation with the Investment Advisor. Opinions of PWL Capital constitute its judgment as of the date of this publication, are subject to change without notice and are provided in good faith but without responsibility for any errors or omissions contained herein. This document is supplied on the basis and understanding that neither PWL Capital Inc. nor its employees, agents or information suppliers is to be under any responsibility of liability whatsoever in respect thereof.

Keeping the Cottage in the Family | 15 3400 de Maisonneuve W., Suite 1501 Montreal, Quebec H3Z 3B8

T 514.875.7566 | 1.800.875.7566 F 514.875.9611

www.pwlcapital.com/layton-guay

Portfolio management and brokerage services are offered by PWL Capital Inc., regulated by Investment Industry Regulatory Organization of Canada (IIROC) and is a member of the Canadian Investor Protection Fund (CIPF). Financial planning and insurance products are offered by PWL Advisors Inc., regulated in Ontario by Financial Services Commission of Ontario (FSCO) and in Quebec by the Autorité des marchés financiers(AMF). PWL Advisors Inc. is not a member of CIPF.