Canadians have a long history of cabin culture. From the 19th century homestead farms to today’s luxury lakeside cottages, many Canadian families take pride in their chalet, and they want to ensure it remains in the family for all following generations to enjoy. But there are some challenges to keeping this cherished property in the family.
Divorce is a messy topic, and it’s one that we hope none of our clients ever face. But as wealthy individuals, the families we work with understand that they must plan for unpleasantness in order to protect their assets and their bloodline. When it comes to the family cottage, the main concern is a greedy in-law trying to claim a portion of the property. This risk is even greater if the couple ever spends time together alone (or with just their children) at the cabin. Even if the home is only in your child’s name, their ex-spouse could claim the cottage was a matrimonial home.
The Matrimonial Home is a legal term that differs depending on province. In Ontario, for example, a matrimonial home does not need to be the primary residence of a couple, but can be any property in which the couple has an interest. This means there may be numerous matrimonial homes for a single couple, and a cottage the couple used even just once or twice before their separation could be considered one in some provinces.
Once the cottage is declared a matrimonial home, the ex could claim exclusive possession of your family’s property and bar your child from using the property. Worse, when the assets of the divorcing couple are equalized, the valuable family cottage will be included.
Trusts are one of the key tools for protecting your family cottage from in-laws. A trust is a legal relationship that allows a person (such as your child) who does not legally own an asset to benefit from that asset. Because your child doesn’t have legal ownership of the cottage, their ex-spouse cannot seize it.
However, there are some important considerations to keep in mind when creating a trust. First, it’s illegal to put property into a trust with the sole intention of preventing a matrimonial claim during a divorce. So you’ll need to entrust the cabin before there’s even a hint of divorce on the horizon. Which is why we usually recommend creating a trust before any of your children even marry.
Another consideration to keep in mind is that moving your cottage into a trust can trigger capital gains. Many recreational properties in Canada have benefited from ever increasing property prices, so the capital gains may be substantial. For example, if your cabin is currently valued a million dollars, with a capital gain of about $900,000, your family may face income tax on it of about $240,000.
At MacMillan, we take protecting our client’s bloodlines very seriously. We are honoured to be entrusted with such a responsibility, and we understand the importance of keeping your assets out of the hands of in-laws who would take advantage of your generosity. Our personalized estate plans allow you to craft your estate in a way that protects your assets while benefiting your bloodline. Schedule a free consultation with our advisors to learn more about how we safeguard your significance.