How to Make Sure Your Children Keep the Family Home

That’s a thoughtful question, Annette, and while it sounds simple, the right answer depends on several legal, tax and family considerations. Below I outline the main options and issues to help you decide whether a trust or another approach makes sense for your situation.

Living (inter vivos) trusts

A living trust, also called an inter vivos trust, is a trust you create while you are alive. In practice, many people use these trusts primarily for tax planning: for example, to split income with family members, to implement prescribed-rate loan strategies, or to work with business succession plans that might affect access to the lifetime capital gains exemption (LCGE). If none of those tax strategies apply to you, a living trust may offer limited benefit.

For Canadians aged 65 and older, an alter ego trust is a related option that can be used to bypass probate in provinces where probate fees are high, such as British Columbia, Ontario or Nova Scotia. But creating an alter ego or living trust solely to keep your children from having to pay to maintain your home may not be the most appropriate or necessary route.

In many cases, a testamentary trust—created by your will and taking effect on death—can achieve the goal of providing property and funds to beneficiaries without the complexity of an inter vivos trust.

Testamentary trusts on death

A testamentary trust is established through your will and comes into effect when you die. You can direct that specific assets, such as your home, be held in trust for one or more beneficiaries and also allocate cash or a percentage of your estate to that trust so funds are available for repairs, taxes and general upkeep.

Using a testamentary trust can protect the property for a set period—allowing beneficiaries time to settle, to access funds for maintenance, or to delay a sale until market conditions improve. It also provides a formal structure for managing the asset if beneficiaries are young or unable to make those decisions immediately.

Tax on your home upon your death

If the property you intend to leave is your principal residence, there is generally no tax on the deemed disposition that occurs on death, provided the property qualifies as your principal residence for each year you owned it and you did not use a significant portion for business or rental. If another property is claimed as your principal residence for some years, or if a large parcel of land is involved, the principal residence exemption may not cover the entire value and capital gains tax could arise.

Cottages and farms bring additional tax considerations. A cottage may generate capital gains if you claimed another principal residence during the years you owned the cottage. Farms might qualify for relief under the farm lifetime capital gains exemption—currently mentioned at $1.25 million in some contexts—which can reduce or eliminate tax on qualifying farm property in certain situations.

What do kids normally do when you die

If your children are minors or still living at home, holding the house in trust for a defined period—say, until the youngest child reaches an age like 25—can let them stay put while they finish school, start careers, and get established. For minors, you would also need to appoint a guardian to care for them until they reach the age of majority; that would be part of your overall estate plan.

However, it’s important not to assume children will want to keep the house. Sentimental attachment varies, and practical considerations matter: beneficiaries may prefer to sell an inherited property to buy their own home, pay off debt, or pursue other goals. A frank conversation with your adult children about your wishes and theirs can prevent unnecessary structures and expense.

Keeping a house as a rental property

Another option is for heirs to keep the home as a rental. While that can produce income, being a landlord requires time, skill and willingness to manage tenants, repairs and potential disputes—particularly if siblings share ownership. Also consider that inheritors may have unused RRSP or TFSA contribution room, or outstanding debts that they’d prefer to address with cash proceeds rather than with a rental property.

Real estate may have appreciated considerably over your lifetime, but future returns are uncertain and may be more modest. For many families, selling an inherited property and dividing the proceeds is the simplest and least contentious route.

Summary

There’s no one-size-fits-all answer, Annette. Whether a living trust, alter ego trust, or testamentary trust is best depends on your estate size, tax situation, the nature of the property (primary residence, cottage, farm), and your children’s preferences and circumstances. Consider whether creating a trust would sacrifice your own retirement comfort for benefits your children might not use or want.

If your priority is to provide funds for upkeep so the house can remain in the family, a targeted testamentary trust funded with cash from your estate is often a practical solution. Ultimately, discussing your goals with a qualified estate planning advisor and having open conversations with your beneficiaries will help you choose the most suitable approach.

Read more from Ask a Planner:

• The return ofThe Wealthy Barber
• What’s more important: your wealth or your legacy?
• An update on trust tax return filings for 2025