Much has been written in this blog space and many others on this topic. Several times a year (in some years more often than others), we are asked in our practice about to advise on succession or estate planning issues for the family cottage.
I was recently alerted to a very good article called How to Estate Plan for the Family Cottage by Tim H. R. Brown of Richard, Buell Sutton in B.C. What got my attention was that the author deals with both the financial and the emotional issues in some depth, often associated with the plans to transition the family cottage (or any family recreational property for that matter).
Beyond the need to document all the basic facts and assumptions associated with the property (current and expected future ownership, cost, improvements, current value), the author addresses the hard questions that need to be covered:
- What happens if one of the future owners can’t afford to pay for their share of expenses (or goes bankrupt), gets divorced, becomes mentally incompetent, passes away, become a non-resident for tax purposes, moves so far way their interest in the cottage may not be of significance to them, or simply wants to sell their interest?
- What is the framework for decision-making regarding use of the property, dealing with one of the issues above or others, future dispositions etc?
- How will the current ownership be transferred (to individuals, corporations trusts etc.) and what right(s) should be retained during the lifetime of the current owner(s)?
- How are rule breakers deal with (for instance, resulting from the use of the property or not fulfilling their obligations as outlined above)?
Some of these questions (and others) will be challenging to answer but they need to be asked, otherwise as the author notes (and many have experienced), if they don’t get asked or dealt with, the ground is fertile for family conflict, and dare I say it, litigation.
The author delves into the technicalities of current and future ownership as well as other planning issues, which may be better raised and dealt with the assistance of professionals.
With the pandemic this year, the family cottage and its usage seem to have taken more prominence, so maybe its time for many to initiate and/or refresh their plans.
Happy Reading, stay safe and well.