My family trust holds the cottage — what should we do before the 21-year deemed disposition hits?

As the 21-year deemed disposition date approaches for a trust holding a family cottage, the core decision is whether to let the trust pay tax on the accrued gain at that point, or to distribute the cottage out to beneficiaries beforehand on a tax-deferred rollover basis instead. Distributing it to a Canadian-resident beneficiary who has a capital interest in the trust generally lets the transfer happen without triggering the gain immediately, the beneficiary takes over at the trust's cost and the tax bill is deferred until they eventually sell.

The practical questions matter as much as the tax mechanics: which beneficiary, or beneficiaries, as co-owners, actually gets the cottage, whether they can afford to keep it and cover ongoing costs, and whether other family members need to be compensated for giving up their interest in the trust's other assets. Distributing to multiple beneficiaries as joint owners can also create its own future disputes over use, expenses, and an eventual sale.

Because the cottage often carries as much emotional weight as financial value, and the tax result depends on exactly how and to whom it's distributed, this needs a review with the trust's accountant and lawyer well before the anniversary date, not a last-minute decision in the final year before it hits.