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Infinite Banking in Penticton

A second property is the asset that most often turns a straightforward estate into a dispute. The tax problem and the family problem are separate, and they need separate answers.

Between two lakes

Penticton sits on the strip of land between Okanagan Lake and Skaha Lake, with the Kettle Valley Railway grade above the benches and the vineyards running south toward Oliver. The Peach Festival has run since 1948 and the Ironman brought a different kind of visitor. It is a city where a large share of the property is a second property, held by families from the coast and from Alberta.

That produces the specific problem this page is about.

Two problems, and people confuse them

This is the page's central point. A recreational property creates a tax problem and a family problem, and solving one does nothing for the other.

The tax problem. Canada has no estate tax but does have a deemed disposition at death: capital property is treated as sold at fair market value and the accrued gain is taxed in the final return. Only one property per family unit can be designated as the principal residence for a given year, so the cabin bought in 1985 for a fraction of today's value generally carries a large gain, and the estate must pay it in cash while the value sits in the land. That is the liquidity problem, and life insurance is the ordinary tool for it: an insurance need with a calculable amount.

The family problem. Three adult children inherit a cabin in equal shares. One uses it every summer, one lives in another province and visits rarely, one wants the money. They now own a property together, must agree on repairs and taxes and who gets the August long weekend, and any one of them can force the issue. Insurance does not fix this. Money does not fix this. Only a decision made in advance fixes it.

What actually resolves the family problem

Ask the children what they want, individually and before anything is drafted. Households routinely plan around an assumption that the eldest wants the place, and the eldest has been dreading it for years without saying so.

Then choose deliberately. Leave it to the one who will use it and balance the others with other assets, which is where an insurance policy has a clean role: it produces the amount needed to equalise without anyone having to sell anything. Or direct that it be sold and the proceeds divided, which disappoints someone but disappoints them on your terms rather than in a lawyer's office. Or put it in a structure with rules written down, which requires a lawyer and works only if the family will actually follow them.

The one approach that reliably fails is leaving it to everyone in equal shares and hoping.

If you rent it out

Rental income is taxable and reported. Claiming expenses against it, and particularly claiming capital cost allowance, has consequences on eventual sale, and a change in use between personal and rental can itself trigger a deemed disposition. This is accountant territory before it is anything else, and short-term rental rules in the Okanagan have changed more than once.

Where the strategy on this site fits, and where it does not

If the gap is a defined tax bill at death, the answer is insurance sized to it, and that is a narrower and cheaper conversation than the one this site usually describes. Cash surrender value stays below cumulative premiums for many years, commonly more than a decade, so an early exit is a loss. Dividends are not guaranteed: they are declared annually by the insurer's board based on the participating account's experience, and the scale can be revised downward.

A household carrying a mortgage on the recreational property should deal with that before funding long-dated premiums. Insurance in British Columbia is regulated by the Insurance Council of British Columbia; verify the licence in the public register and ask how the person is paid. British Columbia has no title protection statute of the kind Ontario, Quebec and New Brunswick have enacted.

Nothing on this page is advice, and nothing on it is tax or legal advice about property or estates. No assessment has been made of anyone reading it, and the author is not a neutral party: he is licensed to sell the contracts this strategy uses and is paid a commission when one is placed. Bring the purchase price, the year of purchase and a current estimate of value. Those three numbers start the real conversation.