One of the most challenging decisions that parents have to make when drafting their wills is how to pass their vacation property to their children. What is the best way to deal with Recreational Property in Wills?
The first decision is who to leave the property to. This alone can be very difficult. Do they leave it to all of their children to share or do they leave it to only one.
Once this decision is made the tax implications have to be considered. On the death of the first of the parents the property can be left to the surviving spouse and no capital gains tax will be payable. On the death of the second parent the capital gains tax will be paid by the estate. There will also be a probate fee of approximately 1.4% payable by the estate.
For example, if a parent has 3 children, an estate worth $2mil and a vacation property worth $1mil they may choose to leave the vacation property to one child and the remainder of the estate to their other 2 children equally thinking it is a fair division of the assets.
This will not be the case particularly if the vacation property has increased in value and there is a significant amount of capital gains tax owing. The one child will receive the $1mil property and the other two children will receive one half of the estate after all taxes and probate fees have been paid.
Deborah A. Todd