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Helping Clients Reach Financial Security
"No Matter What"
 
Ken Armstrong 
Insurance & Financial Services
Milton, Ontario 
905-878-0951
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Keep the Cottage in the Family

Les  and his brother Rob  and sister Jill, are all in their early 40's and truly wish to keep the family cottage in the family. 
Their parent s Jack age 68  and Muriel age 65  have had a cottage near Bellville  for nearly 30 years. 
They all have a great working relationship with the cottage and have discussed the succession of the cottage to the family so that the grandchildren can enjoy the cottage in the future. 
Their major concern is the capital gains tax to be paid on the cottage upon the death of the parents. 
What are their options?  Do nothing, transfer to the kids,  transfer to a personal corporation,  or  obtain tax free dollars?

To easily  calculate  their future Capital Gains Tax   and   determined that they could see in the future that they could need as much as $100,000 of tax free dollars  in order to pay the government.  Taking in to consideration of the financial wealth of their children and their financial commitments   education for children, mortgages  etc..  the cottage would likely have to be sold to produce the cash necessary  to pay the necessary tax  required, should something happen to both  Jack and Muriel in the near future or down the road.  Should they leave the cottage in their will equally to Les, Rob and Jill  Revenue  Canada's interpretation. it will not be considered a gift for Tax Purposes.
 
Year
Monthly Deposit into account
 Tax Free Dollars Required
1
142.50
$100,000
2
142.50
$100,000
3
142.50
$100.000
4
142.50
$100,000
5
142.50
$100,000
6 -10
142.50
$100,000
11-15
142.50
$100,000
16-20
142.50
$100,000
21-25
142.50
$100,000

Taking into account that  Les, Rob and Jill would have to start today saving money to pay this future tax bill to keep the cottage in the family, they would have to save nearly $263 per month and based on their current marginal tax rates of 46%  and estimate high return of 9% (calculate yourself)  it would take them twenty years to accumulate an account of tax free money  to  pay the estimated tax bill of $100,000.   Les , Jill and Rob have decided to split  the monthly deposit equally of $142.50 per month.

Should Muriel  pass away 5 years from now and Jack  dies in the 10th year, Les, Rob and Jill would have required to invest the $142.50 per month and realize a 55% annual return on their money over the 10 years to have saved $100,000 tax free. calculate yourself

Should  Jack pass away 10 years from now  and Muriel  dies in the 20th year,  Les, Rob and Jill would have required to invest the $142.50  per month and realized a 18% annual return on their money over the 20 years. to have saved $100,000, tax free. calculate yourself

Let us assume that  Jack dies and Muriel  lives until she is 95 years of age.  and Les, Rob and Jill would have required to invest the  $142.50 per month they would realize a 8%  annual return on their money over the 30 years to have saved $100,000 tax free. calculate yourself