Universal
Life - Who Gets the Cottage?
Author:
Ivon T. Hughes
The
family cottage. It is that most Canadian of legacies where the memories made
become part of family lore. That's is why it's important that your cottage,
and all that it represents, stays within your family for generations to come.
In
the eyes of the Canada Customs and Revenue Agency (CCRA), your cottage is
considered a capital asset. As such, upon your death they automatically assume
that it has been transferred your spouse. If you have no spouse, you are
deemed to have disposed of your cottage at fair market value, and of course
they will expect you to pay taxes on this "deemed income".
But
what happens if your family does not have the money to pay these taxes? After
all they haven't actually sold the cottage. In recent years real estate values
have increased substantially. Your family could be forced to sell the cottage
at a fire sale price to pay the tax owing.
So
what is the solution? Simple. Use a Universal Life policy to pay the taxes.
Premiums paid over your lifetime end up being a fraction of the potential
tax bill, and they are paid gradually rather than all at once. Take the example
of Sam and Donna, and their son John. Sam and Donna purchased a cottage in
1980 for $30,000 and it is now worth $150,000
Sam
and Donna have arranged in their wills that their assets, which include the
family cottage, be passed down to John. Should the cottage appreciate in
value at 5% per year, the capital gains tax at Donna's age 84 (her life expectancy)
would be $104,000. This amount must be paid before John receives his inheritance.
Sam
and Donna wish to conserve their assets for John and find a way to minimize
the impact of the capital gains tax, so they establish a Universal Life policy.
The policy is set up for a death benefit of $104,000 to cover the estimated
capital gains tax. With premiums of $3,203 annually over 10 years, Sam and
Donna will end up paying $32,300 to offset the $104,000 in taxes owing by
John upon their deaths.
Using
Universal Life, they are able to save over $70,000 in taxes, while at the
same time keeping their cottage within the family.
For
more information on how to use insurance to ensure your cottage stays in
your family, or to learn about other wealth management strategies send me
an e-mail at [email protected], or give
me a call toll free at 1-877-842-3863.
Back
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Ivon T. Hughes, The Hughes Trustco Group Ltd.
Online Insurance Broker - Get a FREE Quote TODAY!
Tel: (514) 842-9001 Email: [email protected]
Web: www.hughestrustco.com
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