The Best of The Blunt Bean Counter - A Family Vacation - A Memory Worth Not Dying For

This summer I am posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am re-posting a May 8, 2012 blog that I already re-posted in 2015 on the merits of a grandparent/parent taking their family on a vacation if they have the financial means.

The impetus to post this blog yet again, was a retirement webinar for small business owners I took part in earlier this month. During the webinar I discussed this topic, which reinforced to me, how valuable these trips can be for family bonding (taking the optimistic viewpoint, as opposed to the possibility that too much togetherness may not be good for some families).

A Family Vacation- A Memory Worth Not Dying For

I have written several times on the topic of whether parents (parent can be interchanged with grandparent wherever used in this post), who have the financial means, should provide partial gifts while they are alive, as opposed to just leaving an inheritance to their children or grandchildren.

I am a proponent of providing partial gifts while alive if you have the financial resources. My rationale is simple. Why not receive the pleasure of your gift either directly (such as a family vacation) or vicariously (by observing your children or grandchildren enjoy their gift such as a bike, car or even cottage).

The concept of a partial gift being used at least in part for a family vacation has substantial appeal to many parents. A family vacation is appealing because a parent can participate in the experience, the vacation more often than not, results in memories that last a lifetime for all the participants, and lastly, the parent has control over the gift.

I can attest personally to the benefits of a family vacation. Several years ago, my in-laws funded a Disney Cruise vacation for their children, their children's spouses and their grandchildren. This trip had a profound impact on the bonding of the grandchildren. In the case of my in-laws, the memories and enhancement of their grandchildren’s relationships was priceless and continues to this day.

Another very poignant and moving example of the gift of travel is the story of Les Brooks. Les, a Vietnam veteran, had unresolved issues relating to the war and as he states in this Princess Cruises travel blog.

One day during the course of a conversation, Les’ mother asked him if he could take a trip anywhere in the world, where would he go. After thinking about the question he surprised his mother by saying Vietnam. Unbeknownst to Les, she later booked him on a cruise to Vietnam. 

Sadly, his mother passed away before Les took the cruise and could not observe the impact this gift had on her son’s life; but I would surmise, she knew the impact it would have as she paid for the cruise. Les says this about the special gift his mother provided while alive; “I realized my mother’s gift had opened the door to many profound gifts. Through her kindness and intuition, she provided the way back to Vietnam and my healing. There, through the smiling acceptance and unspoken forgiveness of that little girl and the many other Vietnamese who welcomed me, I was able to put aside much of the guilt that had gnawed at me for so long."

While Les’ gift was not a family bonding vacation, it was a gift provided while his mother was alive, a trip that may never have occurred if Les inherited the money and spent it otherwise.

The concept of using a partial gift to fund a family vacation has become popular for both family bonding and financial reasons. As grandparent David Campbell says in a USA Today article (link expired), he is mostly motivated by a desire to make his children's lives a little easier. "It's getting to a point I'd like them to enjoy life," says Campbell, a regional sales manager. "And if they're going to enjoy it, they might as well enjoy it with me."

I have observed the family vacation phenomenon on several of my own vacations. Suddenly a horde of people arrive at the pool or restaurant (not necessarily a welcome site for other vacationers) with corny matching t-shirts, saying “Smith Family Vacation 2011” or some other similar sentiment. 

Although we all know that any large family gathering can veer off the rails, these trips often bridge the generation gap between offspring and grandparents and parents. I often hear people reference these types of family vacations when they have a family get-together or the topic arises over dinner with non-family members.

Personally, I would rather hear my grandchildren say or know they are saying "When I was young, my grandparents took me on the most amazing trip!", than, “I just inherited $25,000 from my grandparents, what should I buy with it?”

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

The Best of The Blunt Bean Counter - Transferring the Family Cottage - Part 3

In the final post of my three-part blog series on transferring the family cottage, I discuss some of the alternative strategies available to mitigate or defer income taxes that may arise upon the transfer of the cottage to your children. Unfortunately, none provide a tax "magic bullet".

Part 3 – Ways to Reduce the Tax Hit

The following alternatives may be available to mitigate and defer the income taxes that may arise on the transfer of a family cottage.

Life Insurance

Life insurance may prevent a forced sale of a family cottage where there is a large income tax liability upon the death of a parent, and the estate does not have sufficient liquid assets to cover the income tax liability. The downside to insurance is the cost over the years, which can be substantial. In addition, since the value of the cottage may rise over the years, it may be problematic to have the proper amount of life insurance in place (although you can over-insure initially or if your health permits, increase the insurance at a later date). I would suggest very few people imagined the quantum of the capital gains they would have on their cottages when they initially purchased them, so guessing at the adequate amount of life insurance required is difficult at best.

Gift or Sale to Your Children

As discussed in Part 2, this option is challenging as it will create a deemed capital gain, and will result in an immediate income tax liability in the year of transfer if there is an inherent capital gain on the cottage. The upside to this strategy is that if the gift or sale is undertaken at a time when there is only a small unrealized capital gain and the cottage increases in value after the transfer, most of the income tax liability is passed on to the second generation. This strategy does not eliminate the income tax issue; rather it defers it, which in turn can create even a larger income tax liability for the next generation. Since many cottages have already increased substantially in value, a current sale or transfer to your children will create significant deemed capital gains, making this strategy problematic in many cases.

If you decide to sell the cottage to your children, the Income Tax Act provides for a five-year capital gains reserve, and thus consideration should be given to having the terms of repayment spread out over at least five years.

Transfer to a Trust

A transfer of a cottage to a trust generally results in a deemed capital gain at the time of transfer. An insidious feature of a family trust is that while the trust may be able to claim the Principal Residence Exemption ("PRE"), in doing so, it can effectively preclude the beneficiaries (typically the children) of the trust from claiming the PRE on their own city homes for the period the trust designates the cottage as a principal residence.

This paragraph is an update to the original 2011 post. A reader of the blog recently asked a question on life and remainder interests in a cottage. When gifting or using a trust, you can transfer ownership of your cottage to your children, while still keeping a "life interest" in the cottage, which allows you continued use of the cottage and the income from the property (if any) for the rest of your life. However, the transfer/gift to the trust still triggers a capital gain for tax purposes. You are essentially just ensuring you have access and use of your cottage and the future increase in the cottage value accrues to your children from the date of the transfer. This is a complicated topic and beyond my area of expertise. You should consult your lawyer in tandem with your accountant to ensure you understand the issues in your specific situation in using a life transfer and remainder interest.

If a parent is 65 years old or older, transferring the cottage to an Alter Ego Trust or a Joint Partner Trust is another alternative. These trusts are more effective than a standard trust, since there is no deemed disposition and no capital gain is created on the transfer. The downside is that upon the death of the parent, the cottage is deemed to be sold and any capital gain is taxed at the highest personal income tax rate, which could result in even more income tax owing.

The use of a trust can be an effective means of sheltering the cottage from probate taxes. Caution is advised if you are considering a non-Alter Ego or Joint Partner Trust, as on the 21-year anniversary date of the creation of the trust, the cottage must either be transferred to a beneficiary (should be tax-free), or the trust must pay income taxes on the property’s accrued gain.

Transfer to a Corporation

A cottage can be transferred to a corporation on a tax-free basis using the rollover provisions of the Income Tax Act. This would avoid the deemed capital gain issue upon transfer. However, subsequent to the transfer the parents would own shares in the corporation that would result in a deemed disposition (and most likely a capital gain) upon the death of the last surviving parent. An “estate freeze” can be undertaken concurrently, which would fix the parent’s income tax liability at death and allow future growth to accrue to the children; however, that is a topic for another time.

In addition, holding a cottage in a corporation will result in a taxable benefit for personal use and will eliminate any chance of claiming the PRE on the cottage for the parent and children in the future so this alternative is rarely used.

In summary, where there is a large unrealized capital gain on a family cottage, there will be no income tax panacea. However, one of the alternatives noted above may assist in mitigating the income tax issue and allow for the orderly transfer of the property.

I strongly encourage you to seek professional advice when dealing with this issue. There are numerous pitfalls and issues as noted above, and the advice above is general in nature and should not be relied upon for specific circumstances.

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation. Please note the blog post is time sensitive and subject to changes in legislation or law.

The Best of The Blunt Bean Counter - A Family Vacation- A Memory Worth Not Dying For

This summer I am posting the "best of" The Blunt Bean Counter blog while I work on my golf game. Today, I am re-posting a May 8, 2012 post on the merits of a grandparent/parent taking their family on a vacation if they have the financial means.

A Family Vacation- A Memory Worth Not Dying For

I have written several times on the topic of whether parents, who have the financial means, should provide partial gifts while they are alive, as opposed to just leaving an inheritance to their children or grandchildren.

I am a proponent of providing partial gifts while alive if you have the financial resources. My rationale is simple. Why not receive the pleasure of your gift either directly (such as a family vacation) or vicariously (by observing your children or grandchildren enjoy their gift such as a bike, car or even cottage).

The concept of a partial gift being used at least in part for a family vacation has substantial appeal to many parents. A family vacation is appealing because a parent can participate in the experience, the vacation more often than not, results in memories that last a lifetime for all the participants, and lastly, the parent has control over the gift.

I can attest personally to the benefits of a family vacation. Several years ago, my in-laws funded a Disney Cruise vacation for their children, their children's spouses and their grandchildren. This trip had a profound impact on the bonding of the grandchildren. In the case of my in-laws, the memories and enhancement of their grandchildren’s relationships was priceless and continues to this day.

Another very poignant and moving example of the gift of travel is the story of Les Brooks. Les, a Vietnam veteran, had unresolved issues relating to the war and as he states in a Princess Cruises travel blog (unfortunately the link has expired)  “Vietnam was a place I left in 1966 praying I would never have to go back. But Christle sensed the deeper truth…I was curious about the place; I wanted and needed to see for myself what life was like today for the people of a country that I left so torn apart by war.”.

One day during the course of a conversation, Les’ mother asked him if he could take a trip anywhere in the world, where would he go. After thinking about the question he surprised his mother by saying Vietnam. Unbeknownst to Les, she later booked him on a cruise to Vietnam. 

Sadly, his mother passed away before Les took the cruise and could not observe the impact this gift had on her son’s life; but I would surmise, she knew the impact it would have as she paid for the cruise. Les says this about the special gift his mother provided while alive; “I realize my mother’s gift had opened the door to many profound gifts. Through her kindness and intuition, she provided the way back to Vietnam and my healing. There, through the smiling acceptance and unspoken forgiveness of that little girl and the many other Vietnamese who welcomed me, I was able to put aside much of the guilt that had gnawed at me for so long."


While Les’ gift was not a family bonding vacation, it was a gift provided while his mother was alive, a trip that may never have occurred if Les inherited the money and spent it otherwise.

The concept of using a partial gift to fund a family vacation has become popular for both family bonding and financial reasons as discussed in this USA Today article . As grandparent David Campbell says in the article, he is mostly motivated by a desire to make his children's lives a little easier. "It's getting to a point I'd like them to enjoy life," says Campbell, a regional sales manager. "And if they're going to enjoy it, they might as well enjoy it with me."

I have observed the family vacation phenomenon on several of my own vacations. Suddenly a horde of people arrive at the pool or restaurant (not necessarily a welcome site for other vacationers) with corny matching t-shirts, saying “Smith Family Vacation 2011” or some other similar sentiment. 

Although we all know that any large family gathering can veer off the rails, these trips often bridge the generation gap between offspring and grandparents and parents. I often hear people reference these types of family vacations when they have a family get-together or the topic arises over dinner with non-family members.

Personally, I would rather hear my grandchildren say or know they are saying "When I was young, my grandparents took me on the most amazing trip!", than, “I just inherited $25,000 from my grandparents, what should I buy with it?”

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.

A Family Vacation- A Memory worth not Dying for

I have written several times on the topic of whether parents, who have the financial means, should provide partial gifts while they are alive, as opposed to just leaving an inheritance to their children or grandchildren.

I am a proponent of providing partial gifts while alive if you have the financial resources. My rationale is simple. Why not receive the pleasure of your gift either directly (such as a family vacation) or vicariously (by observing your children or grandchildren enjoy their gift such as a bike, car or even cottage).

The concept of a partial gift being used at least in part for a family vacation has substantial appeal to many parents. A family vacation is appealing because a parent can participate in the experience, the vacation more often than not, results in memories that last a lifetime for all the participants, and lastly, the parent has control over the gift.

I can attest personally to the benefits of a family vacation. Several years ago, my in-laws funded a Disney Cruise vacation for their children, their children's spouses and their grandchildren. This trip had a profound impact on the bonding of the grandchildren. In the case of my in-laws, the memories and enhancement of their grandchildren’s relationships was priceless and continues to this day.

Another very poignant and moving example of the gift of travel is the story of Les Brooks. Les, a Vietnam veteran, had unresolved issues relating to the war and as he states in a Princess Cruises travel blog “Vietnam was a place I left in 1966 praying I would never have to go back. But Christle sensed the deeper truth…I was curious about the place; I wanted and needed to see for myself what life was like today for the people of a country that I left so torn apart by war.”.

One day during the course of a conversation, Les’ mother asked him if he could take a trip anywhere in the world, where would he go. After thinking about the question he surprised his mother by saying Vietnam. Unbeknownst to Les, she later booked him on a cruise to Vietnam. 

Sadly, his mother passed away before Les took the cruise and could not observe the impact this gift had on her son’s life; but I would surmise, she knew the impact it would have as she paid for the cruise. Les says this about the special gift his mother provided while alive; “I realize my mother’s gift had opened the door to many profound gifts. Through her kindness and intuition, she provided the way back to Vietnam and my healing. There, through the smiling acceptance and unspoken forgiveness of that little girl and the many other Vietnamese who welcomed me, I was able to put aside much of the guilt that had gnawed at me for so long."

Here is a link to Les' travel blog.

While Les’ gift was not a family bonding vacation, it was a gift provided while his mother was alive, a trip that may never have occurred if Les inherited the money and spent it otherwise.

The concept of using a partial gift to fund a family vacation has become popular for both family bonding and financial reasons as discussed in this USA Today article . As grandparent David Campbell says in the article, he is mostly motivated by a desire to make his children's lives a little easier. "It's getting to a point I'd like them to enjoy life," says Campbell, a regional sales manager. "And if they're going to enjoy it, they might as well enjoy it with me."

I have observed the family vacation phenomenon on several of my own vacations. Suddenly a horde of people arrive at the pool or restaurant (not necessarily a welcome site for other vacationers) with corny matching t-shirts, saying “Smith Family Vacation 2011” or some other similar sentiment. 

Although we all know that any large family gathering can veer off the rails, these trips often bridge the generation gap between offspring and grandparents and parents. I often hear people reference these types of family vacations when they have a family get-together or the topic arises over dinner with non-family members.

Personally, I would rather hear my grandchildren say or know they are saying "When I was young, my grandparents took me on the most amazing trip!", than, “I just inherited $25,000 from my grandparents, what should I buy with it?”

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Joint Bank Accounts-Documenting your Intention

In my blog Probate Fee Planning-Income Tax, Estate and Legal issues to consider, I talk about how holding assets in joint tenancy can be problematic post the Supreme Court decision in Pecore v Pecore.

I further discuss that many parents who put funds in joint accounts with a child/children to save on probate taxes (sometimes creating substantial income taxes as result) are often not clear as to their intention in regard to the funds: i.e. is it the parent’s intention that the funds held jointly with one child belong to that child, or do they belong to all their children with an understanding that the child on the account will share with their siblings?

The Pecore decision states that where assets are transferred without consideration (such as to a child to avoid probate), the presumption of a resulting trust will operate in almost all cases save transfers from a parent to a minor child. This means that when a parent transfers assets into a joint account with one child, there must be evidence of the intention to make a gift to that specific child or the joint account is presumed to be held in trust for the parent’s estate and the proceeds are divided pursuant to the parent’s will. In certain cases it may have been the parent’s intention to share the funds with all their children equally; however, in other cases the parent may have wanted a specific allocation to a specific child.

In order to avoid the presumption of a resulting trust post Pecore, lawyers have been yelling from the rooftops that people need to document their intention in regard to joint accounts. Well, the enterprising law firm of Fish & Associates has tried to come to the aid of Canadians with The Joint Asset Planning Kit.

For $45 the firm will sell you a 15 page document that, according to the website, “allows a parent to clearly express his or her intentions regarding joint parent-child accounts. If a parent wants the assets in a joint account to go to the joint owner, then this is spelled out clearly in the document.”

On the Jointasset.com website, Barry Fish states that he took “pains” to ensure that The Joint Asset Planning Kit can't override a will. “We've been very, very careful to ensure that, under no circumstances, do we ever want this document to be construed as a revocation of a prior will or testamentary disposition.”

I want to be clear of two things at this point. Firstly, I have never met Barry Fish or any of his associates (although we were quoted together in this article on estate planning for the black sheep child) and I am not receiving any compensation for discussing their website. Secondly, I can only rely on Mr. Fish’s assertion that this kit will stand up in a court without having any effect on a prior will.

If you have a lawyer, I suggest you consider meeting with them to draft a document stating your intention in regard to any joint bank accounts (this is the case whether you want a joint account to be shared equally by your children or not). If you do not have a lawyer, you may wish to consider purchasing The Joint Asset Planning Kit, but be clear, I am not endorsing such, just noting the kits existence for your consideration.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Income Tax on Inheritances

I often field calls from clients asking about the income tax consequences of an inheritance they are receiving or will receive in the future. The answer to the question is always the same; there are no income tax consequences in Canada to the recipient of an inheritance (save the obscure situation noted below). This statement holds true whether the inheritance comes from within Canada, the United States, Europe or anywhere else in the world.

I could end my blog right here, but as my readers know, I tend to write more rather than less, so I will take this subject down one level. Lynne Butler also has a very good blog on this topic and discusses the obscure situation where you may owe income tax on an inheritance.

Where income tax really rears its ugly head in respect of inheritances, is in the taxation of the deceased person. For income tax purposes, a deceased person is deemed to dispose of his or her assets at their fair market value on the date of death. These deemed dispositions can result in an income tax liability for the estate of the deceased, which will reduce the value of the estate and ultimately the inheritance.

It should be noted, that there is no deemed disposition of cash. Where the deceased owned capital property such as stocks, the stocks are deemed disposed of on the date of death, at their fair market value. The gain is measured from the initial purchase price of the asset. For example, if the deceased had purchased Bell Canada several years ago for $15 and the stock price on their date of death is $32, they will have a deemed capital gain of $17, even though they never sold the shares.

Where you have a depreciable asset such as real estate, the deceased may have “recapture” of prior depreciation claimed and a deemed capital gain. However, in cases where the principal residence was the only real estate property of the deceased, there will be no income tax exigible.

Where a deceased person owned multiple real estate properties, such as a home, cottage, vacation property or rental property, the principal residence exemption may be allocated partially to the other properties and thus, the deceased’s principal residence could be partially or wholly taxable.

In addition to the income tax owing on death, the deceased may owe income tax on any income earned from January 1st of the year of death to the actual date of death. This is known as the terminal income tax return. The estate may also owe income tax from the date of death until the assets are distributed to the beneficiaries.
The deceased's estate may also be liable for probate tax; see my blog on probate taxes for more details.

In the United States there is estate tax that can potentially reduce the amount of an inheritance from a US person or a Canadian person with US situs assets.

So in summary, there are no inheritance taxes in Canada, however, there are several taxes that may affect the ultimate inheritance received.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Transferring the Family Cottage-There is no Panacea-Part 2

In the second blog, of my three blog guest post for the Canadian Capitalist; I discuss the income tax implications of transferring or gifting a cottage to your children. Many people are unaware these gifts or sales, often create an immediate income tax liability.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.

Transferring the Family Cottage-There is no Panacea-Part 1

The final blog in my three part series on Executors; ”Is a Corporate Executor the Right Choice?" will be posted next week.

This week I am going to post links to a three part blog I wrote on transferring the family cottage, which the Canadian Capitalist has kindly posted. For anyone who does not know the Canadian Capitalist, it is one of the preeminent financial blogs in Canada.

The cottage blog series will be broken into three blogs. The first blog will discuss the historical nature of the income tax rules, while the second blog will discuss the income tax implications of transferring or gifting a cottage and finally in the third blog, I will discuss alternative income tax planning opportunities that may mitigate or defer income tax upon the transfer of a family cottage.

I hope you find the cottage series informative. I will post my week 8 Confessions of a Tax Accountant later in the week.

The blogs posted on The Blunt Bean Counter provide information of a general nature. These posts should not be considered specific advice; as each reader's personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in one of the blogs.