The following thoughts may assist someone mulling estate planning issues - planning to keep the cottage in the family forever, trying to save tax dollars and probate fees, or just minimizing the fuss.
There are title conveyancing issues, tax issues, and control issues.
Georgian Bay cottage property is almost entirely recorded in the land titles system, which does not recognize a trust. A single trustee on title is, as far as that legislation is concerned, a beneficial owner and probate of the trustee's Will is required if the trustee dies.
What are your options if there are no significant taxable capital gains? If an estate is currently being settled, or has just recently been settled, or the property is newly purchased, then the capital gains tax is paid up to the present. You have a window of opportunity to deal with beneficial title before there is any further material gain in the value of the property.
Now is the time to place title in the youngest two adult heirs, as joint tenants. If they hold title in their own right, then the tax man will not be further involved until one of them dies, gifts the property, or sells it. They can also hold in trust for themselves and other infants. The Land Registrar will not recognize the trust, so on the death of one trustee, the survivor becomes sole owner. The trust document should provide for the appointment of a substitute trustee, so there is always at least two trustees in existence. If the trust document is something other than a bare trust (described below), then the tax rules require the trust assets to be deemed to be sold at fair market value every 21 years. The trust document is enforceable inter partes, and can be as complex as you wish subject to the automatic taxation provision.
If other persons are putting up money to have title transferred into the names of others (for instance parents bank rolling the purchase of the cottage and putting it in the name of their adult children, as trustees) they may be concerned that the children may get themselves into matrimonial or financial trouble, exposing the cottage asset to the claims of third parties. The parents can reserve for themselves a life estate which will give them day-to-day control over the property for their lifetimes. The ownership of the asset becomes subject to the life estate, and significantly impairs its market value in the hands of a creditor.
Transfer to a non-share corporation -- such a corporation does not have shareholders but members. Members are entitled to vote, and depending on the incorporating documentation, may be entitled to a distribution of the value of the Corporation on its dissolution. A member's interest is not, however, transferable like a share certificate, and any value of the members interest dies with the member. Membership cannot be willed, but is determined by the bylaws of the Corporation which of course is in turn determined by the membership as it exists from time to time. This is not a way to deal with an asset of significant value.
Transfer to a share corporation - if a business corporation holds an asset, it must be related to the business of earning income. In the absence of earning a taxable income, or perhaps in addition to earning a taxable income, a shareholder may also have attributed to him a taxable benefit for the free use of the cottage. This taxable benefit used to be ignored as a matter of policy (so there are some single purpose corporations around), but is now applied.
And LLC, recognized for some tax purposes, has no capacity to hold real estate in the province of Ontario. A partnership is by definition an association for the purpose of gain, and partners are exposed to the attribution of income from the cottage asset.
Transfer to a minor (in Ontario, a person under 18) - minors do not have the capacity to own real estate. But a trustee can hold for children.
Transfer to a trust - for any trust other than a bare trust, the transfer in is treated as a taxable event, and the trust is further treated as having sold all of its assets at fair market value every 21 years, at which time it would pay capital gains tax on the gain. So long as there is more than one trustee, then the death of one trustee should not create a conveyancing or tax issue.
You cannot escape the tax man. If you gift the property, tax is payable as though it was sold at fair market value. When you die, tax is payable as though it was sold immediately before your death at fair market value. You can gift fractional shares away over a period of years, and pay the tax as you go. The tax plan here is focused on the avoiding of probate fees (called estate administration tax, and imposed at approximately 1.50% of the gross value of the estate in this jurisdiction - frequently the value of the cottage only) and other estate processing fees.
Transfer to a bare trust - a bare trust exists where a trustee holds for another otherwise fully competent individual (not a minor), and contains no power of appointment, and the trustees have no duties to perform except to obey the instructions of the beneficiary, and had no discretion but to follow the provisions of the beneficiary's Will in the event of the beneficiary's death. A transfer to a bare trust is ignored for both income tax purposes and land transfer tax purposes. It must be supported by proper evidence. The transfer of the only asset in this jurisdiction, being the cottage and its contents, to two or more young adult trustees by current owners of advanced age, in trust for the current owners, avoids all estate processing costs in this jurisdiction. If a trustee is married, the spouse of the trustee should also be made a trustee.
This arrangement can be expected to defer the unavoidable capital gains tax for the most time, while efficiently dealing with the devolution of title to the family.
If one of the trustees dies, a death certificate simply removes the deceased trustees name from title. The surviving trustee deeds title to himself and the new joint owner, as continuing trustees. Subject to some exceptions, no probate or estate processing in this jurisdiction is required. Certainly no probate fees would be payable, since the trustee had no personal ownership interest in the cottage.
If one of the beneficial owners dies, and assuming the deceased has no other assets in this jurisdiction, no probate or estate processing in this jurisdiction is required. If the beneficial owner does have other assets in Ontario, and probate is required, then the value of the owner's interest must be added into the value of the estate for probate purposes. The death of the beneficial owner, however, does trigger capital gains tax, and a valuation needs to be made and tax paid on the gain of the owner's interest from the time of acquisition to the date of death. On a sale or gifting of the interest of the beneficial owner, either separately from the rest of the owners or together with them all, capital gains tax calculations are also triggered.
Have we created a monster? - the existence of a bare trust means that the trust asset remains beneficially owned by the beneficiary at all times -- the asset is subject to the claims of the creditors of the beneficiary, and the asset must be dealt with, by sale or gift or will, in accordance with the beneficiary's instructions. If the beneficiary becomes incompetent, he is unable to provide instructions to the trustee and the trustee, lacking discretion or authority independent of the beneficiary, is apparently powerless to deal with title in the absence of those instructions. The beneficial owner therefore needs a power of attorney.