A family cottage can be a very important asset for many estates and deciding what to do with it is often a big decision. In this post will attempt to provide some ideas how the disposition of a family cottage might be addressed.
1. Providing instructions that upon death family cottage should be sold. For individuals, who want their assets divided evenly and lack sufficient liquidity to do so, this may be the only way to proceed. Once the cottage is sold, the proceeds can be divided evenly among all beneficiaries. If there are members of the family, who are interested in the cottage, they may be provided the right of first refusal to purchase it.
2. The cottage could be left to beneficiaries in a testamentary trust. This type of trust provides creditor protection and could be a good way to manage the property. Money for upkeep of the cottage could be included as part of the trust. Individuals, who opt for this approach need to name trustees, who may, but do not have to be, the same people as the beneficiaries.
3. Some people leave cottage property to their heirs by transferring it to joint ownership before their death. The property then can pass to the surviving joint owners without having to go through probate. There are number of concerns that should be addressed first before transfer to joint ownership is effected. The concerns include taxation and creditor’s access, among other matters, because often the negative consequences of the transfer may outweight the benefits of avoiding the probate costs.
4. One can always leave the cottage to an heir in the will. When deciding, who will be named as the beneficiary of the cottage in the will, it is generally a good idea to take into account expenses that will arise in connection with the transfer of the property to the beneficiary, such as taxes payable on acquired capital gains. It is also prudent to make sure that all parties named in the will are truly receiving equal amounts after the transfer of the cottage to a designated beneficiary, in the event equal distribution of the estate is the desired effect. One must remember that unless the will says otherwise, the capital gain taxes on the cottage will be paid out of the residue of the estate.
In conclusion, regardless of the approach taken to transfer a cottage, it is generally a good idea to think about the tax ramifications and other consequences of the transfer before deciding on how the property is to be disposed. An estate lawyer can be of assistance in finding the best way to proceed.