Ah, the family cottage: a wondrous place, where many generations come together to relax, swim, fish, and create countless memories to share for many years to come.
It’s also the most litigious asset in any estate. And if you’re not careful, it could ultimately be your family’s downfall.
How sweet memories become bitter conflict
Whether you live in the heart of downtown Toronto or out in the burbs, we could all use the occasional retreat from the craziness of everyday life — and there’s no better place to retreat to than a cozy cabin on one of our province’s beautiful lakes. Sipping your morning coffee on the dock, going out on the canoe with your kids, watching the sun sink below the water with a glass of wine in hand… moments like these are why Ontarians love their cottages so darn much.
But you know who else loves the cottage? You know who else cherishes those mornings sipping a cuppa coffee out on the dock? Your adult children. Also, their spouses. Also their own children (although maybe with some orange juice instead of coffee ☕️). And chances are, those people have opinions about what should happen to the cottage after you’re gone.
Imagine this: you’re in your 90s, lying in your own bed, surrounded by your 4 loving children, their spouses and your grandchildren. You see them all around you, smiling, tears in their eyes as you peacefully slip away, your loving family by your side. What a beautiful end. Now enter the DRAMA!
No sooner are you being taken away by the funeral directors than your children are already talking about your estate. And of course the cottage comes to the forefront as the most contentious asset. You did what most did in your generation: you named your first-born son as your executor. You also took the advice of your lawyer and put your son on title to the cottage, to hopefully help him avoid paying probate tax.
You had told your son that the cottage was not meant for him; he was to share it with his 3 sisters. But your son knows that the law is on his side. The cottage is now his by right of succession, and just a few months down the line, he starts drawing up plans for renovations that only he wants. So now what? Well, your lovely daughters turn around and sue their older brother for their share in the family cottage.
Fuelled by grief, greed and jealousy (that destructive cocktail of emotions!) your daughters spend tens of thousands of dollars to fight for what they believe is theirs. And your son must use the funds in the estate to pay his lawyers fees as the executor of the estate. 3 years and upwards of $80,000–$100,000 later, the matter is settled, your family is destroyed, and the cottage is sold. That is your cottage’s legacy — not the beautiful memories you made there as a family.
As time goes on, you and your family are going to have to answer important questions about the cottage. Questions like:
- Should we add an extension to the original structure, to accommodate our growing family?
- Or should we add yet another Bunkie to the property instead?
- As our lives get busier and more hectic, and it’s harder to go up to the cottage to maintain the property, would it be best to just sell it?
Chances are, your extended family are going to have strong feelings about these questions. There are so many emotions and memories tied up in this one piece of property. So when parents choose not to have a conversation with their kids (or their sons & daughters-in-law!) about the long-term fate of their beloved family cottage, mom & dad are ultimately setting the family up for failure.
Our cottage blindspots
Pretty much all adult children understand that when their parents pass away, their house will need to be sold and taxes will need to be paid. But when it comes to the family cottage, all of that knowledge and logic seem to go right out the window.
Our emotional attachments make it much, much harder for us to have a discussion about what will happen to the cottage after mom & dad pass away. We don’t even want to think about selling off the cottage, or divvying up the stuff inside the cottage, or even negotiating an agreement for shared ownership with all the siblings.
Here’s what most cottage owners don’t realize: although it may be true that they technically “own” the cottage, ownership is ultimately about more than whose name happens to be on the deed. Ownership is also emotional.
Your children believe in their hearts that they own that cottage, whether or not they have a legal claim to it. Regardless of how often your children use the cottage, regardless of how much money or sweat each of your children has put into the maintenance of the cottage, no doubt, they will all assume that they get an equal share in something that they believe they own.
Handing down the cottage: 5 key steps
As with pretty much everything related to Aging & End of Life Planning, the problem with cottages comes down to one crucial error: people don’t talk about things until it’s too late. Parents don’t tell their kids what they’re planning to do with the cottage. Kids don’t tell their parents what they want and expect.
With cottage properties being the most litigious asset in any person’s estate, we need to start talking about their fate with our families.
But what do those conversations actually look like? To get you started, here’s a brief list of steps to sorting out your cottage plans with your family. 🙂
1. Tally up the maintenance costs
An issue that commonly rears its head when litigating cottage ownership is upkeep. Cottages take time and money to maintain. Before you can make a plan for what will happen to the cottage, you need to quantify the resources it will need to stay up and running.
Create a document that details the amount of trips you took to the cottage last year to maintain, fix, alter the cottage property in any way — basically, any time you had to go there that wasn’t just for relaxation.
Now add in the amount of time you spent doing the things needed to maintain the property, from cutting the lawn, to arranging for old trees to be safely brought down, to calling the township to deal with property taxes, and so on.
Lastly, create a detailed budget of how much it costs you to keep and maintain the cottage each year. Deliver that document to all of your children so that they understand what is ahead of them.
2. Ask your kids what they want
This step is the most obvious, but one that’s still often missed. Sit down with each one of your children (either individually or together) and ask them whether or not they want the cottage.
A lot of times, parents assume that their children do. But more often than you’d think, adult children can be quite ignorant as to what cottage ownership actually entails: the hours of driving, the work it takes to open and close the cottage each summer, the difficulty of finding time to get out of the city, repairing damages, and so on.
All of that is saying nothing about the huge amounts of money it takes to maintain a second property. It’s up in the middle of nowhere. If your kids are throwing their hats in the ring to inherit the cottage, are they willing and able to pay for it?
Once we educate our children on the costs of having a family cottage, it could be that some of them don’t actually want it. This makes things a lot easier because you can gift the cottage to the child(ren) that do want it, and then equalize that gift in your Last Will & Testament.
3. Get the spouses involved
If you meet with your kids individually, make sure that then you bring them all together, with their spouses, to talk about a plan for the cottage. Spouses of your children have way more power than we like to acknowledge. Include them in these discussions as they will most definitely have an opinion!
4. Consider “sweat equity”
If you’re keeping the cottage in the family, it’s possible that not everyone will be able to contribute financially. After all, everyone may be at different stages of life! This is where the concept of “sweat equity” comes into play. Your son in Vancouver may agree to pay for half of the property taxes each year, whereas your daughter in Toronto agrees to open and close the cottage with you each season. Both are valuable and help you as aging parents, and the family as a whole, to keep the family cottage up and running — so that you can all keep enjoying it, now and into the future.
5. Plan for capital gains tax
We are seeing a huge problem with cottage inheritances in Ontario right now! Adult children are inheriting their parents’ cottages, and there are not enough residual funds in the estate to pay for the capital gains tax. This causes the children to sell the property in order to pay the tax, and in doing so, watching countless family memories get sold right along with it.
You need to plan for the capital gains tax that will need to be paid when you die. Talk to your lawyer and accountant about an estimated value of the tax. Then, set aside the money to pay for the tax in a separate account. Let your estate trustee/executor know which account holds the money to pay the capital gains tax. That way, that money is held aside and does not get spent by you during your lifetime, and then your kids know that the tax will be paid and the family cottage doesn’t have to be sold.
More than a legacy
Your family cottage is part of your legacy. It’s the place you poured so much blood, sweat, and tears into; the place you spent all of those hours driving to on the highway; the place your kids will always remember as the backdrop for their childhood summers.
But it’s not just part of your legacy. As long as you play your cards right, the old family cottage can continue to be a source of joy for the next generations. And even if your kids decide that it’s time to sell, you can take steps to ensure that that decision isn’t the thing that tears them apart after you’re gone.