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Passing Wealth to the Next Generation
The cottage has grown in value. Your family still sees the same dock, familiar bedrooms and summers together.
That difference matters. The property’s financial value can create obligations that its emotional value does not fund.
If keeping the cottage in the family is your goal, work through three separate questions: the cost of transferring it, the cost of owning it and the cost of someone leaving the arrangement.
The short answer
Plan for three costs separately. First, the tax and probate when the cottage changes hands, which can be due even though nothing is sold. Second, the annual cost of owning it, including major repairs. Third, the cost of buying out a sibling who wants to leave. Identify which money would pay each one before it is needed.
In Canada, death generally triggers a deemed disposition of capital property at fair market value. A gain may need to be reported on the deceased owner’s final return even though the cottage has not been sold. A qualifying transfer to a spouse or certain spousal trusts may defer the gain; other exceptions can also apply. The CRA explains these rules.
The cottage’s current value is only part of the calculation. Your accountant will need the ownership details, adjusted cost base and relevant records, including qualifying capital improvements. A cottage may qualify for a principal residence designation in some circumstances, but the treatment must be assessed alongside other properties and the applicable rules.
One rule to know in advance
A family can designate only one property as its principal residence for any given year, so a city home and a cottage cannot both be fully sheltered.
Do not treat an estimate as a final tax bill. Obtain a calculation based on your circumstances and review how it might change over time.
Consider an illustrative family whose cottage is a substantial part of the parents’ wealth. The children want to keep it, but there are limited liquid assets available for estate obligations.
$286,000
Due before the children can keep a cottage bought for $300,000 and worth $1.3 million at the second parent’s death: about $268,000 of tax at 2026 top Ontario rates, plus about $18,750 of Ontario estate administration tax if it passes through the will.
Ontario estate administration tax is $15 per $1,000 of estate value above $50,000. An estate tax exposure assessment puts your family’s number on paper.
A valuable property does not automatically supply cash to pay those obligations. The family may need to consider available savings, borrowing, insurance or a different transfer arrangement with its advisers.
Life insurance can be assessed as a possible source of estate liquidity, subject to eligibility, premiums and policy terms. Review who would own the policy, receive the proceeds and have the money available for the intended purpose. A benefit paid to a beneficiary should not be assumed to be available to the estate.
No document pays a bill. The funding needs to be identified.
Prepare a current annual budget for property taxes, insurance, utilities and routine maintenance. Add a reserve for major work such as a roof, septic system or dock replacement.
Discuss how contributions would be shared. Equal ownership does not guarantee equal ability to pay. Usage, labour and household circumstances may differ.
If one sibling repeatedly covers another’s contribution, clarify whether that creates a debt, changes ownership or is simply a voluntary payment. Ask the lawyer to document the agreed treatment rather than leaving everyone to make assumptions.
A sibling who wants to sell may be facing a mortgage, a move or a change in priorities. That does not mean they care less about the family.
Discuss valuation, notice periods and whether other owners would have a first opportunity to buy. Consider how a buyout would be funded and what happens if nobody can afford it.
A promise that the property will never be sold may be difficult to sustain without resources or a workable alternative. Have the lawyer explain the available arrangements and their limits.
Begin with the family’s wishes, then bring the financial and legal questions to the appropriate advisers. Revisit the plan as property values, ownership and family circumstances change.
The companion article, Passing Down the Family Cottage, explores how to start the conversation before promising shared ownership. Both discussions belong in the same plan.
01
What potential tax and estate obligations should we plan to fund?
02
Can the intended owners afford annual costs and major repairs?
03
What would allow one owner to leave without forcing an unplanned sale?
Generally, yes. At death, the cottage is treated as sold at fair market value and the gain is reported on the final return, even though nothing was sold. A transfer to a surviving spouse can defer the tax, and the principal residence exemption may shelter part of the gain.
It can qualify in some circumstances, but a family can designate only one property per year. Sheltering the cottage may leave the city home exposed, so the choice needs an accountant’s analysis.
Ontario estate administration tax is $15 per $1,000 of estate value above $50,000 for assets that pass through the will. On a $1.3 million estate, that is $18,750.
Options include savings, borrowing, selling other assets or life insurance arranged as a source of estate liquidity. The key is to identify the money in advance so the cottage does not have to be sold to pay the bill.
At Eagle Wealth Partners, I help Ontario families identify estate liquidity gaps and consider appropriate funding options alongside their legal and tax advisers. Let’s discuss the financial preparation behind keeping your cottage.
Important information
This article is for general information only and does not constitute personalized financial, investment, legal or tax advice. Before making changes to your estate plan, asset ownership or beneficiary designations, consult your lawyer, accountant and appropriately licensed financial or insurance advisor. The right approach depends on your circumstances and the laws and tax rules in effect at the time.
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Sami Majdalani is a licensed life and accident and sickness insurance agent in Ontario. Verify my licence on FSRA’s website. Insurance and segregated fund contracts are placed through HUB Financial, a managing general agency. Eagle Wealth Partners is paid by commission from the insurers whose products clients buy, and may also receive bonuses or other incentives from insurers. A full disclosure of the insurers we represent, how we are paid and any conflicts of interest is available on request.
Segregated fund contracts are individual variable insurance contracts issued by insurance companies. Any amount allocated to a segregated fund is invested at the risk of the contract holder and may increase or decrease in value.
Information on this site is general and is not legal, tax or insurance advice for your situation. Planning is implemented with your legal and tax professionals. © 2026 Eagle Wealth Partners Inc.
