There are different circumstances, which may lead to a situation when a big family cottage becomes an issue. It may be caused by poor maintenance and required repairs or a simple lack of time to keep it in good condition. For those, who don’t know what to do in a similar situation and which steps are necessary to perform the following article prepared by Signature Homes experts can be helpful a lot.
Step 1: Identify Future Owners
The cottage used to be the perfect place where you have spent a lot of happy hours together with close people having fun together and enjoying each other’s company. Often it becomes a family corner that is transferred between generations and where kids and grandchildren grow and educate their kids.
Anyway, any transfer of such property requires accuracy and attention in order do not get into trouble with tax excess or other details which you have never faced before, like for example opposite worldview of your children regarding the cottages assignment.
For these purposes, the good idea is to think forward and to try to determine the best ways to use your property. Thus the wise decision would be to have a sincere conversation with future successors regarding their plans for the cottage and its future. Another reason to have such a conversation is to identify whether all your children what to have it in property or maybe some of them are ready to refuse it. This way family quarrels may be avoided and the further destiny of the family cottage will be in good and interested hands.
Step 2: Be Careful With Taxes
To avoid undesirable tax liabilities it is necessary to plan the way to dispose of the property in advance. For all cases, except for the passing of property to the spouse (common-law partner) as the result of owners’ death, it is disposed of at the fair market value. For cases, when the disposal is performed at fair market value and such value had been increased over time the future owners will be liable to pay the tax for such an increase. To avoid such tax liabilities and decrease their amount the property can be transferred to heirs while the owner is alive by making a gift or selling it at fair value.
The main point is to avoid underestimation of such value, otherwise, the tax will be paid for a capital increase between costs paid and actual market value together with tax paid during the deal (the double taxation will appear). If everything was done correctly you’ll have the opportunity to spread the gain from capital increase for five years claiming the capital gain reserve which will allow make payments gradually during these 5 years and pay taxes only for 1/5 of its cost at any of these 5 years.
The alternative way to decrease the amount of tax liability is to transfer the cottage to the trust for kids specified as beneficiaries. Although it will be still necessary to pay the tax for a capital increase at the moment of the deal the future increases will be accrued to future owners and the day to pay them will be the day of property disposal performed by them.
Step 3: Think Ahead and Purchase an Insurance
The life insurance can cover future gains arisen from capital growth or other kinds of debts connected to cottage maintenance. Payments received under a life insurance program are not obligated by tax and can give the possibility to your family to handle any type of liabilities that appeared regarding such property without selling it.
The transfer of cottage ownership should be planned in advance and maybe the object for discussing with financial and legal consultants, so the certain assurance that things will go smooth will appear. Additionally, if you plan to dispose of the property in a good way, smoothly, and without unpleasant surprises, you can always involve experts from Signature Homes to have appropriate support and assistance in your real estate deals.