Keeping the Cottage in the Family — A Canadian Succession Guide

Last updated May 30, 2026 · 3 min read
Quick answer
The obstacle to keeping a cottage in the family is the capital gains tax triggered by the deemed disposition at death on a property that has appreciated for decades. A spouse can defer it via rollover, and the principal residence exemption can shelter one property's gain (you choose which). The common ways to keep the cottage are leaving it to one child and equalizing the others, co-ownership under an agreement, a trust, or life insurance to fund the tax so no one is forced to sell.

Every Canadian cottage carries an unspoken question: can the kids keep it? The wish is universal and the obstacle is specific — a tax bill, payable at death, on decades of appreciation in a property nobody wants to sell. Families who plan for that bill keep the cottage; families who ignore it often watch their heirs list it because they cannot afford to keep it. The good news is that the planning is well understood, and a handful of strategies cover most situations.

This guide explains the capital gains problem and the realistic ways to keep a cottage in the family. It is general information, not advice; cottage succession is a known planning specialty worth professional help.

The problem — the gain at death

At death, you are generally deemed to dispose of the cottage at fair market value, and a cottage that has grown in value over thirty years can carry a very large taxable capital gain.[2] A spouse can defer it — assets rolling to a surviving spouse transfer at cost — but on the second death the gain crystallizes. If the heirs lack the cash to pay the tax, the cottage itself becomes the only way to pay it, and it gets sold. Planning is about making sure that does not happen.

The principal residence choice

The principal residence exemption can shelter the gain on one property per family per year.[1] A family that owns both a home and a cottage faces a choice: designating the cottage as the principal residence for the years it qualifies shelters its gain, but leaves the city home's gain for those years exposed. Which to designate depends on which property gained more, and it is a calculation for an accountant — ideally one who has tracked both properties over time.

The ways families keep it

Four approaches recur, and most plans blend them:

  • One child plus equalization. Leave the cottage to the child who will use and maintain it, and equalize the others with cash or life insurance — often the cleanest path. See equalization payments.
  • Co-ownership with an agreement. Leave it to several children as co-owners, governed by a co-ownership agreement that handles costs, scheduling, and exits.
  • A trust. Alter ego or joint partner trusts (for those 65+) can hold a cottage and manage succession, with their own tax rules and costs — specialist territory; see alter ego trusts.
  • Life insurance. A policy that pays out at death funds the capital gains tax, so the heirs keep the cottage instead of selling it to pay the CRA.

Reduce the gain with good records

A practical, underused lever: track the cottage's adjusted cost base, including capital improvements — a new dock, septic system, roof, or addition. These add to your cost base and reduce the eventual taxable gain. Decades of receipts kept in a folder can save your heirs thousands. Get a current valuation and keep the documentation.

What we focus on at It's Simple Will

The Will Creator helps you direct the cottage clearly — to one child, to several, or with instructions to sell — which is the foundation a succession plan builds on. The tax calculations, trusts, and insurance belong with an accountant and advisor. For the conflict that shared ownership can bring, see our cottage co-ownership agreement guide.

Citations & sources

  1. [1]Principal residence and other real estate — Canada Revenue Agency
  2. [2]Capital gains — Prepare tax returns for someone who died — Canada Revenue Agency
  3. [3]Administering estates (Ontario) — Government of Ontario

Frequently asked questions

Why is it hard to pass a cottage to the next generation?

Because of the capital gain. At death you are deemed to dispose of the cottage at fair market value, and a property that has grown in value over decades can carry a large taxable gain. If the heirs do not have the cash to pay that tax, they may be forced to sell the very cottage you wanted to keep.

Does the principal residence exemption cover the cottage?

It can, but only for one property per family per year. If you designate the cottage as your principal residence for the years it qualifies, you shelter its gain — but then your city home's gain for those years is not sheltered. Which property to designate is a calculation best done with an accountant, ideally tracking both properties' gains.

How do families actually keep a cottage?

Common approaches are leaving the cottage to one child and equalizing the others with cash or life insurance; leaving it to several children as co-owners under a co-ownership agreement; placing it in a trust; or buying life insurance to fund the capital gains tax at death so the heirs are not forced to sell. Each has trade-offs.

Can a trust help hold the cottage?

Yes, in some situations. Trusts — including alter ego or joint partner trusts for those 65 and older — can hold a cottage and manage its succession, sometimes avoiding probate, though they carry their own tax rules (including a deemed disposition every 21 years for many trusts) and costs. This is specialist planning.

How can I reduce the eventual gain now?

Keep records of the cottage's adjusted cost base, including the cost of capital improvements like a new dock, septic system, or addition — these add to your cost base and reduce the taxable gain. Good records over the years can meaningfully cut the tax your heirs face. Get a valuation and keep receipts.

Should each child get an equal share of the cottage?

Not necessarily. Equal co-ownership often fails because not all children want it equally or can afford the upkeep. Leaving it to the child who will use and maintain it, and equalizing the others, frequently works better than forcing siblings into shared ownership. See our guide on equalization payments.

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