You are a well-respected financial planning group, based in Toronto, Ontario. Two of your longest tenure clients,

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You are a well-respected financial planning group, based in Toronto, Ontario. Two of your longest tenure clients, who are permanent Canadian residents, Mr. and Mrs. Patel, both age 63 live in North York and are concerned about the Capital Gains that are associated with their Family Cottage in Muskoka. As you know the family so well, the Patel's have a son age 44 ( he has had various occupations since leaving University), and they also have a daughter age 42 who is a Lawyer, and lives in Mississauga. Their son Akash is getting divorced from his first wife, and has been living with the Patels. Akash is getting ready to move to Ottawa where his fianc and her family live and have a vacation home in the area. His ex-wife will have sole custody of their two children, as they have agreed to visitation rights for Akash including spending every other weekend with Akash, provided he has a suitable place to house them.His ex-wife and children will continue to reside in the family home in Belleville. Their daughter Teja is happily married to her husband of 12 years who is also a Lawyer. Now that Teja's children are school age, the family love to travel to new places, and take full advantage of time off when the kids are out of school. Mr. and Mrs. Patel come to you wanting to employ a strategy to transition the Capital Gains concerns of the Cottage to their children before the burden of Capital gains attached to the cottage that will need to be paid at the death of the second spouse becomes so significant that the Cottage would almost have to be sold to cover the taxes. The Patels have decided that the cottage is so important to the family, with the memories of all those weeks and weekends with their children and grandchildren, that they must do everything they can to ensure it gets passed down to the next generation. They admit that there is some strain in the family, especially between Akash and Teja.The chalk this up to Akash's separation and upcoming divorce, but they are hopeful that once he gets settled with his second wife, since he is engaged, then things will get better. In passing they mention that Akash is frustrated with having to do the majority of the maintenance at the cottage, which in their minds is a small price to pay to relax in such an oasis. The cottage currently has an Adjusted Cost Base (ACB) of $500,000, and Fair Market Value (FMV) of $1,500,000. They have met with their accountant and discussed putting the cottage in a trust. They admit to only partially understanding the implications of this and were hoping you could clarify how this works with some basic explanations. While discussing this with their Accountant they recall hearing terms like future growth / Capital Gains and Probate Fees being a couple of the reasons the Trust made sense, there were others, but these stuck with them. They both think that this is a good idea for them. Because of this, you have arranged a meeting to discuss these findings.

Financial Planning discussions are not only about dollars and cents.Please review the attached article and consider how the information provided might add to your discussion with the Patels about their goals for the cottage.

https://www.theglobeandmail.com/investing/article-the-perils-of-passing-down-the-family-cottage/

1. Provide a brief summary of what the article is discussing Describe the problem or problems as they relate to Mr. and Mrs. Patel and their cottage concerns. (5 marks)

2. Based on the article and any other information you have sought out what are some potential pitfalls it appears that the Patels have not taken into considerations that should be considered by them ? (4 marks)

a) Potential pitfalls that are based on tax, accounting or legal concerns ?

b) Potential pitfalls thar are based on family dynamics, priorities, etc.

3. Knowing how emotionally attached the Patels appear to be to the Family Cottage, provide a game plan for how you plan approach what may be unwelcome but very important points to consider, before making decisions about how the cottage will be dealt with in the future. What will you say to them? What will you do if they say they would rather not discuss your concerns ? (4 marks)