Not many situations evoke as much emotional attention as the conversation about selling, or planning for the succession of the family cottage. And after all, why wouldn’t it? As it is, most people don’t like discussing the inevitable reality of estate planning and certainly grown children generally have their own ideas about what mom and/or dad should be planning. The cottage has been the place where family memories are made, and where, for the most part, we are “at our best.” It is where we are typically the happiest. It is where we come to unwind and escape from the world. It is where we can chill out and enjoy all that cottage country and the cottage lifestyle have to offer. But, when we talk about estate planning for the cottage, reality has a nasty way of encroaching on our cottage time bubble. All that being said, it is an important topic.

The Phillips Team has been involved with a number of real estate transactions that have resulted from a succession plan that has affected the family cottage. We are not experts, but we can certainly offer up some thoughts about the topic and provide you with some links to seek professional insights and advice.

Here are some of the things that we have learned (and remember, we are in the same boat as cottage owners!):

Communication is Key: Talk with your kids (your heirs). What would they like to see happen to the family cottage? This conversation can be surprising. While your grown children may enjoy all of the benefits of the cottage lifestyle, they may not be willing or wanting to take on the expense and work required to maintain a cottage. Or, you may find that you have a child(ren) that want to keep the cottage and another that does not. Alternatively, all of your heirs may be very interested in sustaining the cottage lifestyle for the family…now what?

2. Consider Shared Ownership: If all of your heirs are committed to keeping the family cottage,it is important that a plan be created that is conducive to the shared commitment. When there is no formal plan in place and family members are passed down a cottage, they are forced into a financial partnership that may or may not go well. Some things to consider:

  • Who wants to use the cottage?
  • How often does each family member want to use the cottage and when?
  • How are you going to create a fair system for determining when and how often       someone can use the cottage
  • Will the cottage be sold or gifted?
  • If sold, who has the financial ability to pay?
  • What maintenance and ongoing costs will there be?
  • Who is going to do the work like paying bills, mowing the lawn, getting the place set for changing seasons, handyman issues, security and cleaning?
  • Who has the financial ability to maintain the expenses and maintenance of the property?
  • What are the financial differences between potential family owners?
  • If you have one beneficiary that is financially well off wanting renovations, new appliances and more recreational toys, how will that affect another family member that is not as financially well off?

(Retrieved January 20, 2015 from
http://retirehappy.ca/estate-planning-with-a-family-cottage/)

3. Create an Estate Plan: An estate plan is a plan for how your assets (including the family cottage) will be managed before and after your death. It is a plan that clearly outlines your choices for asset reallocation, management of taxes and an organized transfer of assets to your loved ones. When it comes to the family cottage, there are many things to consider such as whether this asset will be sold and the money left to your heirs, or will the family cottage be passed down to your heirs? And within each of these choices, there are a number of considerations. Here are some areas to research when thinking about an Estate Plan:

  • Do I have a Will? Is it current and does it reflect my wishes fully?
  • Is life insurance be beneficial in my situation?
  • Is the use of a Trust (Living Trust/Testamentary Trust) helpful?
  • What are my tax considerations?
  • Have I considered probate fees in my planning?
  • Is the Principal Residence Exemption applicable in my situation?

4. Seek Professional Advice: There are a myriad of considerations when addressing an Estate Plan, so sourcing out professional advice is key! Each of us has a different financial portfolio to consider, unique family dynamics to manage, and different expectations and desires to be met in terms of succession planning and estate management. This is why it is critical that you find trusted professionals to assist you in navigating your specific situation as it relates to the future of your family cottage. Here are some of the professionals you may wish to seek council with:

  • A Realtor who is familiar with your marketplace and can provide you with current and relevant market information
  • A Lawyer who is familiar with Estate and Succession planning
  • An Accountant
  • An Insurance Agent/Broker
  • A Financial Advisor

And although our cottage friends are always a great resource for us, remember that professionals are there to provide advice that is current, unbiased, relevant and not grounded in the emotions that are connected with estate planning and your family cottage.

Resources & Reading:

http://business.financialpost.com/2012/10/17/estate-plans-reflect-strength-of-

family/http://privatewealthmagazine.ca/estate_planning.html

https://www.pwlcapital.com/pwl/files/71/71988a16-7e6a-42c3-b3b1-ed7f205646e7.pdf

http://cottagelife.com/82473/realestate/owning/cottage-ownership-challenges-estate-planning-and-wealth-transfer

http://blackstratton.com/content/uploads/Estate_planning_cottage.pdf

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