Many clients want to pass down the family cabin to their children. It’s often the most emotionally important — and most valuable — asset in the estate. But without a clear plan, it’s also the one most likely to cause tension. In BC, cabins and recreational properties are almost always taxable at death, and are often shared among multiple heirs with varying interests, financial abilities, or connections to the property. That’s where the problems begin.
The typical situation
You have a cabin worth $ 4 M. Three children. One uses it regularly. One lives abroad. One prefers cash. If you leave the cabin equally to all three in your will, it may sound fair, but it’s not always practical. Who pays for upkeep? Who gets which weeks? What happens if one wants out or dies? A lack of structure almost guarantees conflict.
Tax and probate issues
Recreational property is typically not a principal residence. (In some cases it can be — if you’ve designated it as such for tax purposes — but most clients already claim their city home). If the cabin isn’t the designated principal residence, capital gains tax applies on death based on the increase in value since it was acquired. On a $4 million gain, the tax could exceed $ 1 million. Add BC probate fees (1.4%) unless the property is kept out of the estate.
Options
- Sell it now. If no one can afford to keep it, or if you want a clean break, sell it during your lifetime. You control the timing and equalise gifts. It may be disappointing, but it’s often the simplest solution.
- Gift it now or in stages. You can gift shares to your children now or over time. This triggers tax. You may be eligible to avoid property transfer tax in some instances. A co-ownership agreement is essential.
- Gift it, but keep a life interest. You retain the right to use the property during your lifetime. This avoids probate on the cabin value but still triggers tax at the time of transfer. Legal and valuation costs are higher.
- Sell it to one or more children. If one or two children can buy the property, you can sell it now. This provides liquidity and allows you to equalise the estate. Use a proper valuation and co-ownership agreement.
- Use a trust. A trust (inter vivos or testamentary) can hold the cabin and set out use and control rules. This helps avoid probate and provides long-term structure, but trusts come with complexity, tax exposure (including the 21-year rule), and setup costs. Not for every family, but a useful option in the right case.
Things to watch for
– Fairness: Equal isn’t always fair. You may need to balance with other assets or hotchpot clauses.
– Co-ownership: If more than one child will share ownership, a written agreement is critical.
– Trustee choice: If using a trust, typically avoid putting one sibling in charge of the others. Consider an independent trustee.
– Funding: Consider how the family will cover taxes, repairs, and potential disputes in the future.
– Communication: Don’t surprise your kids with this plan. Talk to them.
What not to do
Don’t say, “I leave the cabin to my children to share.” That’s not a plan. It’s a problem.
Conclusion
The cabin is rarely a simple asset. If you want to keep it in the family or ensure fairness between children, it takes planning. We help clients structure ownership, plan for tax (with the help of your accountant), and reduce conflict. There’s no one-size-fits-all solution — but there is a solution that fits your family.
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