According to a 2025 BMO survey, 65 per cent of Canadians plan to transfer real estate or property to the next generation.Getty Images
The emotional weight of passing a family cottage or a childhood home to the next generation can obscure a costly financial reality: What seems like a simple line in a will or a name on a title can trigger tax consequences, legal complications and family tensions.
There can be a lot of confusion and misinformation, particularly around probate, which are the provincial levies applied to a deceased person’s estate, says Michael Isbister, senior investment advisor with Harbourfront Wealth Management.
“The biggest mistake families make is focusing on saving a few thousand dollars in probate fees while accidentally creating tens of thousands in tax and legal problems and potential family issues.”
According to a 2025 BMO survey, 65 per cent of Canadians plan to transfer real estate or property to the next generation. But a 2025 report by Willful found that only half of Canadians have a will, and two in five have not had a detailed discussion about their estates – a gap that planning professionals say leaves families exposed.
Krista Evanisky, a trust and estate practitioner with Clarity Law, says the confusion often starts with a basic question: What does leaving property to a child actually cost and who pays?
When a parent dies and leaves property to a child, the tax bill doesn’t land on the child, it’s settled by the estate itself using available cash or proceeds from other liquidated assets.
“Regardless of whether the property is specifically gifted to a child or just left as part of the general residue, any taxes associated with that property are going to be taxed in the parent’s estate,” Ms. Evanisky says.
If a child already owns a principal residence and later inherits a cottage, they will face capital gains when they eventually sell it. The type of property matters too, Ms. Evanisky says.
While a principal residence typically passes tax-free at death under the principal residence exemption, a recreational property such as a cottage is generally subject to capital gains – though the exemption can be applied strategically to either property, whichever carries the higher gain.
Probate fees vary dramatically by province – a consideration that can shape the entire conversation. In Ontario, probate fees, officially known as Estate Administration Tax, are $0 on the first $50,000 of an estate and 1.5 per cent of the estate’s value over $50,000.
“It can be a significant percentage of the estate,” Mr. Isbister points out.
He says a common question that comes up when considering the cost and lengthy process of probate is whether it makes sense to add an adult child to the property title while the parent is still alive. Joint ownership can help avoid probate delays, reduce legal fees and keep assets off the public registry.
“But there’s way more red flags and issues with this,” Mr. Isbister says. For starters, adding a child to the property title could mean relinquishing control – any decision to sell or mortgage the property requires their consent. The transfer can also constitute a deemed disposition, a tax rule where the Canada Revenue Agency (CRA) assumes the property was sold at fair market value, even if no money changed hands. If the property has appreciated, Mr. Isbister says the parent may owe capital gains tax on the increase in value, with 50 per cent of the gain included as taxable income.
Another red flag comes from a shift in family dynamics. Ms. Evanisky points to an adult child who goes through a marital breakdown. “There’s a potential for that property to be subject to a family property claim from their spouses,” she says. “Same if that child has other creditors, their interest in that property [now] may be available for creditors.”
Hannah McVean, a financial planner with Objective Financial Partners, says one option for families looking to pass ownership during life is a bare trust – where legal title belongs to the child, but beneficial ownership remains with the parent. Ms. McVean adds that bare trust arrangements are set to carry annual CRA filing requirements as early as 2026, adding an administrative burden most families wouldn’t anticipate.
“In Ontario, for example, it might be tough to argue that the property shouldn’t be formed part of the estate [and] be probated,” she says. “Is that even worth doing? Maybe purely for the sake of administration, if your parent is quite old or is struggling with capacity, but it might not be accomplishing the goal you want of avoiding probate.”
For those over 65, there is one structural alternative worth exploring: an alter-ego trust – or a joint partner trust for couples – which allows a property to pass outside the will and avoid probate while preserving the principal residence exemption.
It comes with setup costs and annual filing requirements, Ms. McVean says.
“It would have to be a pretty significant amount of property to make those filing fees and set-up costs worthwhile,” she says, adding some Canadians are rightfully worried about the tax.
“I understand why, because it’s a big bill and it’s scary,” she says. “But the compounding growth on that property is totally tax deferred; in the case of a principal residence it’s tax free, and in the case of a cottage it’s tax deferred.”
There are still plenty of tax benefits to owning property, she adds.
Whatever the strategy, Mr. Isbister says it’s important to remember that passing the family property on, and estate planning in general, isn’t always about the financial benefits.
“When you make a will, it’s not really for you. It’s for your beneficiaries. It’s for a smooth transition of assets. It’s for making sure that your legacy is what you want.”