Cottage Succession Planning

Get the conversation started

By Elaine Blades

As seemingly all of Toronto and the GTA prepares to go up to the family cottage, cottage-planning questions can get a lot more stressful than what’s on the barbecue this weekend. If black flies are to be the only stress points around the cottage this summer, adult children – the baby boomer generation -  really ought to start the conversation on succession planning. Now!

While the possibility of inheriting a cottage is a nice problem to have, it’s important to start the conversation early to avoid disappointment and disputes down the road. Children may feel awkward broaching this subject with their parents, but it’s in everyone’s best interest to deal with any issues early on. In fact, many parents find it a relief to have the discussion out in the open.

When having the conversation, determine the ideal outcome and work back from there. There’s no one right answer. Decide what the family wants to have happen and work backwards with the guidance of an expert who can anticipate all scenarios to help get there.

An independent, objective third party can assist in getting the conversation started, assess viable options for each family member and ensure issues are framed in the context of the client’s overall financial and estate plan and implications for the family as a whole.

Sentimentality around the family cottage doesn’t have to result in stressful emotions. It’s all about discussing, planning and seeking the right expert advice. By starting the succession conversation, adult children often find they’re doing their parents a favour, by making the planning process as open as possible.

The unknowns and potential financial implications can be daunting to all parties:

• Costs of transferring can be significant including probate fees, capital gains tax, and land transfer tax.

• Gifting now, bequeathing, or selling to the kids – what’s the best course for all concerned?

• What’s the best legal structure? Joint title (joint tenancy or tenants in common), sole ownership, held in trust?

• How can you treat the kids “equally” when not all have an interest in and/or the ability to enjoy the cottage?

• Insurance strategies – what are they and what role can they play?

• Availability of principle residence exemption – how does this work and what are the tax implications?

When it comes to the cottage, family members are often emotional stakeholders. The best plan for success is to share information and discuss issues openly. There is a myriad of scenarios and options which an estate planner can help anticipate and advise on so it’s best to seek advice early on in the process.

In addition to starting the conversation now, we advise:

• Seek out options that address the entire family unit’s goals so as to provide customized, tax-efficient solutions.

• Be realistic and strategic.

• There are limits to what you can control. So control what you can. Seek out expert solutions that go beyond cookie-cutter.

• Seek proactive advice. If preserving the cottage is an important priority, planning is required to help ensure that the family can continue enjoying it for generations to come.

• Cottage succession touches all aspects of wealth management planning and those plans must be aligned. For parents, there can be implications for retirement income and philanthropy. For children, what exactly are they taking on and how does that affect the wealth they are in the process of building for their family?

In today’s day and age, when families are often more like the Brady Bunch than the Cleavers, families need to seek a full range of expert advice on managing their wealth from those who can anticipate every need and scenario within the family unit. For an investment as loaded with emotion as the family cottage is, our role of impartiality allows for the best and most practical solutions – as well as many more family memories to cherish.

Elaine Blades is the Director for Estate and Trust Products & Services at Scotia Private Client Group

by Editor

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[Tags: cottage planning, cottages, family feuds, succession planning]

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