The Tax Thread

[Mad Mike]

I am in similar situation as MP, trying to get home put into my name from parents. No money changing hands. According to my customer yesterday he was extremely confident no taxes need to be paid! woohoo. I questioned it but he is a realtor of 36 years and claimed to be an expert on the subject. Did so with his daughter. Sometimes it's easier just to agree than try and poke holes in their logic. I said we already talked to an accountant who explained the best course of action. He told me if you don't get the answer you want, find another accountant.

If your parents are gifting you a house that has been their primary residence and is free and clear, there are no taxes due. If there is a mortgage or Heloc registered to the property, you will pay land transfer tax based on the amount outstanding.

If it’s not their primary residence, or they own other property, or you own a property, you will need a tax specialist (lawyer or CA) that can plan the best tax strategy.

 

[GreyGhost]

If there is a mortgage or Heloc registered to the property, you will pay land transfer tax based on the amount outstanding.

Interesting. I didn't know about that part at all. In that case, the kid would be well served to pay off the outstanding debt before the transfer if at all possible. In either case, the debt needs to be paid or transferred but at least you save the tax.

 

[mimico_polak]

Was having an interesting convo at work today. Was telling my buddy the issue with transferring cottage to my name and not having cash up front and he simply said ‘why don’t you just take our an insurance on your parents, make yourself the beneficiary and when they die you get the payout for the amount owing on the capital gain tax? People do this.’

I was shocked. It had never occurred to me. Then I remember my dad telling me a story a few years ago.

Parents’ friend was sick and dying of cancer. She took out a life insurance on herself (while disclosing the cancer) and while her monthly payment was stupidly high, when she died a few months later her son for 1M payout from that policy.

Obviously there are probably holes in the story from dad, but I would’ve never thought to do such a thing.

 

[jc100]

Was having an interesting convo at work today. Was telling my buddy the issue with transferring cottage to my name and not having cash up front and he simply said ‘why don’t you just take our an insurance on your parents, make yourself the beneficiary and when they die you get the payout for the amount owing on the capital gain tax? People do this.’

I was shocked. It had never occurred to me. Then I remember my dad telling me a story a few years ago.

Parents’ friend was sick and dying of cancer. She took out a life insurance on herself (while disclosing the cancer) and while her monthly payment was stupidly high, when she died a few months later her son for 1M payout from that policy.

Obviously there are probably holes in the story from dad, but I would’ve never thought to do such a thing.

I’m balking at the premiums for me and the wife right now and we’re healthy.

 

[mimico_polak]

I’m balking at the premiums for me and the wife right now and we’re healthy.

Ya I can only imagine the premiums on my diabetic, high blood pressure, 70+ year old parents…

I bought my policy at 38 and I’m paying 83/month for 500k on a 30 year policy.

 

[Mikedezo44]

If it’s not their primary residence, or they own other property, or you own a property, you will need a tax specialist (lawyer or CA) that can plan the best tax strategy.

Not their primary residence as they built and moved into a new one, so technically will be considered a rental property. No money owing on it so should just be the difference in appraised value price from when they moved out until day of transfer for capital gains.

 

[GreyGhost]

Was having an interesting convo at work today. Was telling my buddy the issue with transferring cottage to my name and not having cash up front and he simply said ‘why don’t you just take our an insurance on your parents, make yourself the beneficiary and when they die you get the payout for the amount owing on the capital gain tax? People do this.’

I was shocked. It had never occurred to me. Then I remember my dad telling me a story a few years ago.

Parents’ friend was sick and dying of cancer. She took out a life insurance on herself (while disclosing the cancer) and while her monthly payment was stupidly high, when she died a few months later her son for 1M payout from that policy.

Obviously there are probably holes in the story from dad, but I would’ve never thought to do such a thing.

My inlaws have a policy like that. In your case, you need the money now not at a point in the future. Policy will be stupid expensive on old people. I don't see it working.

As for the other story, that is a viable path to generational wealth that works at any age. For the sick person, they only need to be able to beg/borrow/steal payments for the rest of their life which won't be long (hell, you can probably get someone to underwrite the expense for a percentage of the payout). If you are not sick but want to generate a ton of money quickly, take out the largest policy that you can make the first two years payments on (even if you need a loan to make the payments). After two years plus a day, take yourself out. The exact math depends on your age and health issues but in general you can probably get in the ballpark of 500x of your premium payments in two years. That is crazy ROI (but you're dead).

 

[mimico_polak]

Not their primary residence as they built and moved into a new one, so technically will be considered a rental property. No money owing on it so should just be the difference in appraised value price from when they moved out until day of transfer for capital gains.

So when he tells you the secret please share because I’m looking for solutions. The ONLY way I know of how to do it is sign the kid onto the title at the purchase date. Buddy just bought a duplex in his daughters (98%) name and he and his wife (1+1%) so they can avoid it later.

My inlaws have a policy like that. In your case, you need the money now not at a point in the future. Policy will be stupid expensive on old people. I don't see it working.

As for the other story, that is a viable path to generational wealth that works at any age. For the sick person, they only need to be able to beg/borrow/steal payments for the rest of their life which won't be long (hell, you can probably get someone to underwrite the expense for a percentage of the payout). If you are not sick but want to generate a ton of money quickly, take out the largest policy that you can make the first two years payments on (even if you need a loan to make the payments). After two years plus a day, take yourself out. The exact math depends on your age and health issues but in general you can probably get in the ballpark of 500x of your premium payments in two years. That is crazy ROI (but you're dead).

So you’re saying it’s not as kooky an idea as it sounds? Sounds like I need to do the math. And that would def be an awkward discussion…

 

[GreyGhost]

So when he tells you the secret please share because I’m looking for solutions. The ONLY way I know of how to do it is sign the kid onto the title at the purchase date. Buddy just bought a duplex in his daughters (98%) name and he and his wife (1+1%) so they can avoid it later.


So you’re saying it’s not as kooky an idea as it sounds? Sounds like I need to do the math. And that would def be an awkward discussion…

You are just punting CG not avoiding it. By avoiding incremental bites, there is almost zero chance the grandkids can get it as the outstanding bill will be horrendous.

As for the conversation with your parents, I don't know if you need to tell them to be honest. My understanding was you could take out policies on whoever you want. If you were looking for a low number that didn't require a medical, given your knowledge of their medical history you may be able to have the policy in force without them knowing anything.

 

[mimico_polak]

You are just punting CG not avoiding it. By avoiding incremental bites, there is almost zero chance the grandkids can get it as the outstanding bill will be horrendous.

As for the conversation with your parents, I don't know if you need to tell them to be honest. My understanding was you could take out policies on whoever you want. If you were looking for a low number that didn't require a medical, given your knowledge of their medical history you may be able to have the policy in force without them knowing anything.

Well you eliminate the capital gain payment when you try and pass property to the kids, and when the kids take full possession (which they technically have) they can sell and pay capital gain from the sale. That’s how I see it anyway.

Wait what…I can take out a policy on someone without their knowledge?

 

[GreyGhost]

Wait what…I can take out a policy on someone without their knowledge?

It looks like I was mistaken. You normally need their permission.

Life Insurance | Éducaloi

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"
If you take out life insurance on someone else’s life, you must usually get that person’s written permission. But permission is not necessary when the person is someone in whose life you have an interest. This could include the following people:

• your spouse or partner
• your child or a child of your spouse or partner
• your grandchild or a grandchild of your spouse or partner
• your father or mother
• one of your grandparents
• a person who contributes to your support or education
• your employees
• another person in whose life or health you have a financial interest (such as a business partner) or emotional interest (such as a close friend) "

 

[Mad Mike]

So when he tells you the secret please share because I’m looking for solutions. The ONLY way I know of how to do it is sign the kid onto the title at the purchase date. Buddy just bought a duplex in his daughters (98%) name and he and his wife (1+1%) so they can avoid it later.

Not the greatest idea. First off, minors under these conditions cannot claim the principal residence exemption until they reach the age of 18, so no tax benefit there.

Next, parents do not have sole rights to decision-making on a child's property. If there a parental separation/divorce, a family court judge calls the shots on the sale or management of a property based on the child's best interests. A call to family services by a disgruntled grandparent, or a rebellious 13-year-old owner could see a judge appoint a trustee (who is not mom or dad) to manage the property in the child's best interests.

 

[mimico_polak]

Not the greatest idea. First off, minors under these conditions cannot claim the principal residence exemption until they reach the age of 18, so no tax benefit there.

Next, parents do not have sole rights to decision-making on a child's property. If there a parental separation/divorce, a family court judge calls the shots on the sale or management of a property based on the child's best interests. A call to family services by a disgruntled grandparent, or a rebellious 13-year-old owner could see a judge appoint a trustee (who is not mom or dad) to manage the property in the child's best interests.

Wow...didn't consider that. The child is 18 right now, but obviously still isn't able to make her own decisions on such matters. Plus she loses her First Time Buyer's grant.

Although if she goes to McMaster for University then she'll have a place to stay for the duration of her post secondary education.

Regardless...I can't find a way around the capital gain tax when transferring the cottage from child to parent...so it's time to pony up.

 

[Mad Mike]

Ya I can only imagine the premiums on my diabetic, high blood pressure, 70+ year old parents…

I bought my policy at 38 and I’m paying 83/month for 500k on a 30 year policy.

Insurance is not a bad way to plan for takes. If you look at it like an investment, $83/mo becomes worth $500K after about 40 years in a TFSA, If you cash out earlier than that... your heirs win!

 

[Mad Mike]

Wow...didn't consider that. The child is 18 right now, but obviously still isn't able to make her own decisions on such matters. Plus she loses her First Time Buyer's grant.

Although if she goes to McMaster for University then she'll have a place to stay for the duration of her post secondary education.

Regardless...I can't find a way around the capital gain tax when transferring the cottage from child to parent...so it's time to pony up.

If she's 18, she's she can make all the decisions on a property, and parents can make none without her approval.

The property had to have been bought with cash -- so the kid is in a sweet position owning 98% of a paid-up property! She's also on the hook for taxes on the rents.

 

[backmarkerducati]

A lot of this comes down to what the asset is from a personal/emotional viewpoint and perspective.

If it was a bunch of stocks worth $2M today, most (my guess near all) would say sell and pay the capital gains on the increase and take the money. There is no "mom and dad wanted me to keep all these XYZ stocks." Even if the stocks have been held for decades and were way up.

If it is non PR property (like a cottage) worth $2M, some will say sell it, pay the tax and take the cash others may get more emotional in the attachment (nothing wrong with that BTW) but at the same time for society as a whole why should it be different than the above?

Some "thing" or "asset" was bought for $200K, now it is worth $2M--it is still a thing. Now maybe it is more likely that a property was held for that long but it is all money and things.

Sure things, death and taxes.

 

[jc100]

Wow...didn't consider that. The child is 18 right now, but obviously still isn't able to make her own decisions on such matters. Plus she loses her First Time Buyer's grant.

Although if she goes to McMaster for University then she'll have a place to stay for the duration of her post secondary education.

Regardless...I can't find a way around the capital gain tax when transferring the cottage from child to parent...so it's time to pony up.

Yes, but…McMaster?

 

[GreyGhost]

If it is non PR property (like a cottage) worth $2M, some will say sell it, pay the tax and take the cash others may get more emotional in the attachment (nothing wrong with that BTW) but at the same time for society as a whole why should it be different than the above?

On the attachment front, there is no way we would want the inlaws cottage as it is a "family" cottage. Even if we owned it outright, my wifes brother and family would still consider it theirs to use. Even worse would be a split ownership with us having all the work/expenses and him having all the enjoyment. If I wanted a cottage, I would sell that one and buy another so it was very clear who had rights to use it. It is in the will that if the cottage is in the estate, it goes to him and not my wife.

 

[mimico_polak]

A lot of this comes down to what the asset is from a personal/emotional viewpoint and perspective.

If it was a bunch of stocks worth $2M today, most (my guess near all) would say sell and pay the capital gains on the increase and take the money. There is no "mom and dad wanted me to keep all these XYZ stocks." Even if the stocks have been held for decades and were way up.

If it is non PR property (like a cottage) worth $2M, some will say sell it, pay the tax and take the cash others may get more emotional in the attachment (nothing wrong with that BTW) but at the same time for society as a whole why should it be different than the above?

Some "thing" or "asset" was bought for $200K, now it is worth $2M--it is still a thing. Now maybe it is more likely that a property was held for that long but it is all money and things.

Sure things, death and taxes.

Agree with you 100%. They should be treated the same, as in the end...they are effectively the same.

It's that emotional attachment that makes the decision difficult. I loved that cottage when I was younger, and my kids love it now. Would I buy THAT cottage today? No. I would buy something on the water, in a more secluded area, and probably further away.

If they sell the cottage for (assuming) 450k. That's 450k in cash - capital gains of 120k = 320k in cash to do with as they please. That type of coin can do a lot of good/bad lol.

 

[mimico_polak]

On the attachment front, there is no way we would want the inlaws cottage as it is a "family" cottage. Even if we owned it outright, my wifes brother and family would still consider it theirs to use. Even worse would be a split ownership with us having all the work/expenses and him having all the enjoyment. If I wanted a cottage, I would sell that one and buy another so it was very clear who had rights to use it. It is in the will that if the cottage is in the estate, it goes to him and not my wife.

This is not really a concern for us (currently) as my sis has no want of it in any way shape or form. While I love my sis and BIL, there's zero chance I would split cottage ownership with them. Not because I don't like them, but because 'well I want all the long weekends of the summer, and you take the rest' type of discussions.

I like to do the work around the cottage myself. They like to (and can afford to) pay someone else to do it.

There's just too many issues.

I'd rather pay off my house at some point, and THEN buy a cottage...wait...I'm talking myself into a decision here...