Transferring the Family Cottage Among Multi-Generation Tax-Free
By: Gregory Dobson, CMA, CFP, EPC

How are you dealing with the family cottage? If your family has grown like mine, you'll understand the challenge of allocating time at the cottage and deciding who should bear the cost of maintaining and improving the place.

Setting up a “special” corporation to hold the family cottage is worth considering. Each member of the family is a "member" of the corporation.

The bylaws of the corporation dictate how time at the cottage is to be shared among the members of the corporation. And each member is required to pay a membership fee annually. The fees are designed to cover the costs of maintaining the cottage and making any improvements to the property. If a member doesn't pay his fee, he could eventually lose his membership.

There are some real benefits to this corporation idea. First, you can ensure that the cottage will never be sold if that's your desire.

Next, you can avoid all income taxes and probate fees at the time of death on the property since your "interest" in the cottage will fall outside of your estate if the corporation is properly structured. This can mean a tax-free "transfer" of the cottage to the next generation.

Be sure to consider a number of important issues before jumping on the bandwagon.