Relaxing by a lakeside cottage is a quintessential Canadian experience. But for many families, their cottage property was purchased years—and in some cases, decades—ago, and as the family structure has evolved, questions may begin to arise about how to share it fairly.
Ensuring you have a clear and current understanding across generations on ownership and usage will help make family time at the cottage more enjoyable and harmonious.
A cottage sharing agreement, negotiated, and implemented while parents are still actively involved, may be just what your family needs.
Creating a cottage sharing agreement
This practical agreement details agreed-upon guidelines on how to transfer cottage ownership and control, with the goal of keeping the property in the family.
Specifically, the agreement can help ensure:
- The cottage is safely passed from one generation to the next
- Children become stewards for the next generation
- A structure is in place for children when the parents are no longer involved — this can include outlining financial responsibilities, use-sharing issues, division of labour and a fair method of dispute resolution
What specifics should a cottage sharing agreement include?
Ideally, all cottage sharing agreements should be made between active parents and their children to avoid any surprises or tension after parents pass on and the will is read. The more complete a cottage sharing agreement is, the better it will serve the family.
Here are a few points to consider and include in the agreement:
- Who gets to use the cottage? Owners only, the family of owners, or friends? Are guests or non-family members permitted?
- How will you use the cottage? Should all children use it together, or will time be split evenly between siblings? Is there a time when no one should use the cottage?
- What are the house rules? When a child stays at the cottage, what are their responsibilities? What items or activities are prohibited, for example, pets or smoking?
- Can it be rented to others? Can any of the children rent out the cottage during their allotted time or during non-use? How will revenue be shared?
- How should costs be shared? How will utility bills, municipal taxes, and insurance premiums be split among children? Should ongoing costs be shared equally or in proportion to usage and/or affordability? Who is responsible for paying these bills on time?
- Who is responsible for opening and closing? If it is a seasonal property, who will take the lead to open and close the cottage?
- Who oversees maintenance and repairs? Which improvements should be budgeted for to ensure the cottage’s upkeep? Who should take the lead on updates and repairs?
- How should collective decisions be made? For example, by majority vote or a unanimous one?
- What are the inheritance guidelines? If an heir dies, should the surviving spouse inherit the share of the cottage? Or should it be passed down to the individual’s children?
A cottage sharing agreement process is designed to proactively deal with issues like these, to avoid possible future friction.
Keeping it in the family
When it’s time to pass on legal ownership to the next generation, a cottage sharing agreement can help clarify the process. Without an agreement, any owner can apply to the court to have the property sold, and his or her share paid out. With an agreement in place, owners agree to give up this legal right to force a sale.
As mentioned, the cottage sharing agreement should provide for a safe inheritance path. Some questions to think about include:
- Does an owner’s share go to the surviving spouse, who may later remarry?
- Does the share pass on to the deceased owner’s children?
- Should the surviving parent have a life interest, ensuring his or her continued right to use and enjoy the cottage?
A cottage sharing agreement can help effectively address the inevitable issues of inheritance like these.
Promoting family peace
No matter how cooperative children may be, it is inevitable that issues will arise from different opinions. A prime purpose of an agreement is to provide ways to prevent these from developing into full-blown family disputes.
Differences of opinion amongst owners on how to proceed may best be decided on with a simple majority vote. This tends to work well for non-critical decisions such as redecoration or usage. More complex issues, like additions to the cottage or a sale to non-family members, may require unanimous approval. An agreement may also provide for amicable approaches like mediation.
Family council
Many cottage sharing agreements provide a family council meeting, a routine time or date for family members/owners to discuss and decide on cottage matters. These are generally annual meetings held in winter and include discussions about setting a budget for operating expenses and agreed-upon repairs and improvements.
If the cottage sharing agreement provides for periods of exclusive usage, then the family council is the most appropriate time and place to figure out who gets which block of time. Considering significant matters, like when to schedule repairs, decide on improvements and budget appropriately, can also be covered during a family council. The council can also choose how to allocate responsibilities for the upcoming year, including bill payments, opening and closing, sharing chores, etc.
Getting started
Even the most carefully thought-out cottage agreements will not prevent the occasional sibling disagreement or family friction. The goal, however, is to diffuse most problems before they become an issue.
Cottage succession planning may involve several experts, including wealth advisors, appraisers, and estate and trust professionals, to get the job done well. The agreement is a legal contract, so starting the process with a lawyer who can identify the issues, provide recommendations and a draft agreement to discuss with your family will save time and avoid trouble.
The process of finding a financial advisor can be overwhelming. It is our job to make that process simpler and easier.
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