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TORONTO, ONTARIO--(Marketwire - May 21, 2011) - As the weather gets warmer and real estate activity picks up, house hunters are emerging from their slumber, searching for that perfect home or cottage. In fact, the value of cottage properties is already on the rise, with sale prices of waterfront properties up an average of 7 per cent in some regions compared to last year.

"Unlike a home, cottages are mostly used on an occasional basis, but the financial implications are just as pertinent as that of a home purchase," said Fausto Bonomo, Regional Director, Specialized Sales, BMO Bank of Montreal. "If you are considering buying a cottage, it's important to be realistic and honest about what you can afford and carefully examine how this type of investment will fit into your larger financial picture."

For many Canadians who already own a cottage, the idea of passing it along to the next generation may seem like something that does not need to be addressed immediately. However, plans for succession should be arranged as early as possible in order to account for the future liability tax that will be incurred when the cottage is inherited by or sold to a family member.

"Keeping a cottage in the family can mean a hefty capital gains tax for those that will be taking over the property," said James Wong, Director of Succession Planning, BMO Harris Private Banking. "Planning is absolutely essential if you want to avoid leaving your heirs with a looming tax liability. It is best to have discussions early, not only with your family, but also with financial and legal professionals who can go over your options with you and point you in the right direction."

Thinking about purchasing a cottage, or about transferring your existing cottage to family members down the road? BMO Financial Group provides the following tips:

• Keep it real – Treat a cottage purchase just as you would a home purchase. Take market conditions into account and determine how the property fits with your financial plan, including both the short and long-term financial impact.
• Start talking – If you already own a cottage, start talking with your loved ones about the process of succession, and include your financial planner, accountant and/or lawyer in the conversation.
• Avoid the burden – There are several ways to fund the capital gains tax liability that will be incurred when the property is sold or inherited by a family member. These include transferring the cottage to a family trust, setting aside funds to pay the tax later, and/or using a life insurance policy.