Cottage Preserver

How do you keep your cottage in the family?

There's no tax on memories but when your cottage passes to your heirs, there is tax on the capital gains. How will the tax bill be paid? The Cottage Preserver provides tax-free cash via permanent life insurance. This is often the cheapest and simplest solution to keep your cottage in the family.

The Strategy

Here are the steps:

  1. Get an estimate of the tax on your cottage today. How would you pay the bill? What assets would you sell?
  2. Get an estimate of the tax bill at life expectancy and — to be conservative — beyond (say when the youngest life is age 100). The calculations require a projection of the growth in the value of your cottage after inflation.
  3. Look at the costs of different amounts of life insurance to pay the bills. Since life insurance is also an investment, look at the after-tax returns too.
  4. If you like the results, request refinements and then implement the strategy.

Do you qualify?

The Cottage Protector helps if:

  • you and your family want the cottage to stay within the family
  • you're healthy
  • your spouse is also protected

Pros

  • provides peace of mind for you and your children
  • leaves more of your estate intact

Cons

  • you qualify based on your health
  • a long term commitment
  • the longer you delay, the higher the cost

How It Works

  1. Get an estimate of your likely premium based on your age, health and lifestyle. We protect your privacy by contacting multiple sources without identifying you.
  2. If you're satisfied, apply for permanent life insurance on you and your spouse (if any). The design is called Joint Last To Die, meaning the death benefit is paid at the time of the second death. That's when the tax bill is due. Your estate is the beneficiary.

Variations

You can fund your premiums in different ways:

  • annually for life: lowest annual outlay, creating a higher ROI. However, the death benefit is generally flat, meaning that the value decreases each year after accounting for inflation. The total outlay may be higher than with the option below because premiums are payable until the younger life reaches age 100.
  • a guaranteed period like 10-20 years: generally creates a cash value and a death benefit that increases to help keep pace with inflation. Generally means a lower ROI.

Since your children will benefit from the cottage, you could ask them to pay some or all of the premiums. After all, they would be required to pay for the taxes and upkeep eventually. This is a way to gauge their commitment.

You could select a higher death benefit to help cover the costs of taxes and upkeep.

FAQ

These answers are general and simplified for clarity. For specific answers for your unique situation, arrange a chat.

What if some of my children and grandchildren have moved away or don't want to use the cottage?

If you have heirs who can't or won't use the cottage, you can still treat them fairly. You could make them beneficiaries of life insurance for the value of their share of the cottage. They get cash and your other heirs get the cottage.

Do I have other options than life insurance?

You can do various things. Keep scrolling down for general information about the pros and cons of strategies such as selling the cottage to your children, gifting the cottage to them and using trusts. As usual, be sure to talk to your tax and financial planning advisors about your specific situation.

Other common questions about life insurance

Read more


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