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Monday, July 11, 2011

Another cabin nightmare

The readers are keeping me busy with plenty of good questions these days! Here's another, which the reader referred to as "another cabin nightmare". I would certainly agree with that title.

"My mother in law owned a cabin and put the names of her 4 sons on the title. I am assuming that they are joint tenants. She passed away in 2010 and in her will it says she give, device and bequeath her property at the lake to her four sons in equal share. How can that be when they are already registered owners of the property? We are now working on her estate and the accountants say that there is $15K of capitals gains payable on the cabin. Is this right that the total capital gains has to be paid or should it only be on 1/5 of the value. She did not sell but gifted."

You're right that if the cabin was already in the names of the sons, the mother's will isn't able to transfer the cabin to them. Nobody can transfer something they don't own. The clause you mention doesn't actually transfer the title but does no harm. My guess is that the mother made the will before she transferred the title, just in case she passed away before making the change to the title. She probably just wanted to make sure that the cabin went equally to the sones. This is pretty common. It's also possible that she was told about the new rules regarding inter-generational joint property and wanted to confirm her intention to pass the title.

As for the capital gains, I am not in a position to gainsay an accountant's calculation of what is owing. In fact, I rely on accountants in my own practice to determine tax amounts owing. It's possible, in fact it's quite probable, that when the title transferred to the sons, there was no capital gains tax paid at the time, and therefore it's all still owing from back then. Your best bet is to ask the accountant for clarification of the period of time that the tax covers. Not having seen the will or any other information about the estate, the best I can do is let you know about the general rules, which you can then use to talk to the advisors working on the estate.

The fact that the property was gifted rather than sold doesn't make any difference to taxes. Both sales and gifts are considered "dispositions" for Canada Revenue Agency's purposes.

I think you will find that once you have a bit more information, the tax situation will become more clear. The executors did exactly the right thing in hiring an accountant to help with taxes. Unfortunately, once the estate is settled, the sons are just beginning the real cabin nightmare. From this point on, they will have to be unanimous in all decisions regarding usage, maintenance and sale of the property. That is impossible for most families to achieve.

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