Cottages are an important part of many families. They’re a place filled with happy memories and have been an annual gathering place for those closest to you. But when it comes time to pass on your cottage, family members may have different ideas about what should happen next and how the cottage should be handled in your will. People often come to us with questions like:
- How do you pass a cottage on to the next generation?
- Is a cottage trust a good idea?
- How do we deal with conflicting ideas about what happens to the cottage?
Let’s take a look at some of those questions so that you can start the conversation with your family
Avoiding family conflict with cottages
Family cottages can cause family conflict if they aren’t handled properly in your will. There are a number of ways that this can happen, but the most common is when one child really wants to keep the cottage but others may not be able or interested in doing so. On the opposite ends of the spectrum is when everyone wants the cottage but on different terms. If you would like to avoid any potential family conflicts arising from your cottage when you pass away, here are some tips:
- Consider holding a family meeting to discuss what everyone hopes will happen. It may lead to a discussion where everyone can be accommodated, or will at least allow you to identify where points of disagreement might be.
- Make sure each child knows what was agreed upon by all members of the family before making a decision about how the property will be dealt with after your death.
- Think about appointing someone else (a trustee) instead of leaving it directly to one person who may have different ideas about what should happen with the property than all other siblings living nearby. We’ll discuss this below.
What about cottage trusts?
A trust can be created for the benefit of a specific person or group of people, or for the benefit of a specific purpose. In a cottage trust, the cottage is transferred under your will (or beforehand) to someone who will act as the “trustee” of the cottage. That person, who can be an adult child, another family member, or someone trusted but unrelated, will be the technical owner but they will be holding it for the benefit of others, often family members of the person who has passed away. Cottage trusts are often used to ensure that the cottage isn’t controlled by any one family member and also allows a mechanism to leave funds to ensure that the cottage is looked after for a period of time. It can also be used to temporarily hold a cottage until your children are over a certain age and able to manage the responsibility of a cottage.
Trusts aren’t right for everyone
Trusts can be complicated and there are a number of factors to consider when thinking about setting one up. The tax consequences are a major consideration and everyone thinking about a cottage trust should talk to their accountant before they get too far into the process. Trusts are also a more expensive solution to set up than leaving a cottage to someone in your will outright and involve significant planning and discussion.
Beyond that, though, a cottage trust doesn’t solve all of the conflict problems that people are concerned about, it only delays them. Trusts have a practical time limit to them in Manitoba and in some other provinces (including Ontario) can have a firm legal time limit to how long they can exist for. This means that when the time limit is up, or some other conditions expire, something will eventually need to be done with the cottage anyway and it will need to be given to someone or sold.
Passing on the cottage doesn’t mean that all your heirs need to be co-owners.
The most common way of dealing with a cottage isn’t a cottage trust, but to leave it outright in a will. You can leave the cottage to one person or more than one person, or maybe even have some other options, depending on your wishes.
- To one heir: If your cottage is going to be passed down to a single heir, then you’ll need to appoint that person as the beneficiary of the cottage in your will.
- To multiple heirs: You can name more than one individual as a beneficiary of the cottage, with each share being equal or even unequal. It would be important that everyone involved has a very good idea of what that shared ownership looks like, especially between adult children, to make sure that everyone understands what the intention and responsibilities are with that kind of shared ownership.
- To charity: You can also choose to give the property to a charity. This means that your family will no longer have use of the cottage but may confer a significant tax benefit. You should definitely seek professional financial advice before considering this.
Talking with family
Whatever you do, talk to your family about it beforehand and make sure the know the plan so there are no surprises later. They don’t have to like or agree with the plan, but discussions that happen while concerns can still be addressed are significantly better than trying to have a discussion afterwards. If your child loves the cottage, but has never been particularly interested in maintaining it, for example, she might not be thrilled about inheriting a fixer-upper. So how does one avoid these kinds of misunderstandings?
- Start early: It’s a good idea to have this conversation well before you pass away (it’s awfully hard to do so afterwards). While everyone needs time to adjust and process what’s happening when someone dies, talking about who inherits assets while there is still plenty of time can help minimize any confusion down the road. Set a dinner to discuss estate plans, including the cottage. Give everyone some time beforehand to develop their thoughts about a potential plan and what they want. You may be surprised at how much common ground there is around wishes and concerns.
- Be honest: The best way to set people up for success after you’re gone is by being open and honest with each other now—not only about who gets what, but also why each person should get something at all! For example: “I’m leaving my cottage to my daughter because I know she’ll love it as much as I did,” or “I’m leaving my cottage to my son because he has always been such an integral part of our family.”
- Seek assistance: A lawyer experienced with cottage challenges can provide answers through the conversation process. Often times an excellent solution can be crafted, so long as you do it within the bounds of what is allowed, and with some guidance on potential pitfalls with a plan. For more contentious families, even a family therapist or mediator who can facilitate discussions may be very helpful in keeping everyone focused and working towards a common goal.
In the end…
There are many options when it comes to dealing with your cottage in your estate and it’s important to find a solution that works for you and your family, and not just what seems easiest. It all depends on what your family wants, how much time they want to spend together, and how much they trust each other. The best thing to do is figure out what works best for you and then talk about it with your family so that everyone knows what’s going on.
This article is for information purposes only and is not legal advice. You should definitely seek your own counsel about plans that you may be considering. This article is written with Manitoba in mind and may not be applicable in other provinces or countries. Some of the information in this article may not apply to your situation at all so please do not make any plans or decisions based on it exclusively.
Gerrit Theule is a partner at Wolseley Law LLP and his primary practice area is in Wills, Estates, Trusts, and Elder law.