For many Kelowna visitors, our lakes, mountains and sunshine are a place to unwind with their friends and family at secondary vacation homes. As these properties are now starting to get passed on to the second (or third) generations, many interesting legal issues are arising including:
- Income Taxes (capital gains) payable on the death of the Parents on Title;
- Income Taxes payable due to placement of kids as Joint Tenants with Parents (to avoid #1)!;
- “Sharing” issues between family members on things like upkeep costs and usage times;
- Liability issues in the event of a judgment against or divorce of one the owners (where property is shared);
Some Potential Solutions Include:
- Legal Ownership Structuring – Does there need to be a “Co-Ownership” agreement setting out the use and enjoyment of the property between multiple families? For larger or more complex family holdings, has a Family Holding Company or Trust been considered (Divorce/ Liability Protection)?
- Tax Planning – Capital gains will be payable upon transfer to children (whether as joint tenancy or upon death), has this tax been accounted for (life insurance may assist)? Is a principal residence exemption/ election available (or part thereof), especially if the primary home is not expected to appreciate?
- Securing Family Loans – Where a property (or portion thereof) is to be transferred to kids without immediate payment, parents should ensure that a promissory note/ mortgage evidence the loan (important in case of a future marital breakup).
Need help with a family vacation residence?