Your cottage is more than a property, it’s home to endless family memories. Often, they’re legacy properties passed down from generation to generation. But what will happen when it’s your children’s turn to take ownership?
Heading north up the 400 (with hopefully a good head start on traffic), stopping at Timmys halfway for a double-double, maybe a detour to your favourite Chip Truck, then finally pulling onto your property only to be greeted by the sounds of loons and the glistening lake. Does it get more Canadian than that?
Cottage Life is the quintessential Canadian experience – one shared with family, often on a property, you spent your childhood on a generation or two ago.
But with that comes something I’ve seen too often as a financial advisor. As families grow larger and brothers and sisters have kids of their own, there’s not always a clear understanding across the generations regarding ownership and usage. Establishing that will help make family time at the cottage all the more enjoyable and harmonious.
A cottage sharing agreement, negotiated and implemented while the parents are still actively involved, can be critical to ensuring that family time at the cottage remains enjoyable and harmonious well into the future.
WHAT IS A COTTAGE SHARING AGREEMENT?
A cottage sharing agreement is a practical detailing (no emotions allowed) of 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?
The purpose of a cottage sharing agreement is to avoid any surprises or family tensions after parents pass on and the will is read. So, it must involve both the active parents and their children. There are a lot of often-unconsidered responsibilities involved in cottage ownership, so the more complete the agreement is and the more heads it has nodding in agreement, the better it will serve the family.
Here are a few things to consider and to put into 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? Are pets, smoking, and noisy parties/watersports allowed?
- Can it be rented to others? Can any of the children rent out the cottage during their allotted time or non-use? Can it serve as an Airbnb? If so, how will any 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 the individual child’s ability to afford the costs? Who is responsible for paying these bills on time?
- Who is responsible for opening and closing? If it’s a seasonal property, whose job is it 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 be in charge of updates and repairs?
- How should collective decisions be made? Majority vote? Or a unanimous decision?
- 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?
By proactively dealing with issues such as these, your family can successfully avoid potential (and potentially nasty) friction among siblings.
Trust me, you’ll be thankful you did this.
KEEPING IT IN THE FAMILY
Let’s jump to the future when it’s time to pass on legal ownership to the next generation. Your cottage sharing agreement will need a safe and specific inheritance path. Without an agreement, any owner (let’s say it’s shared among kids) 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.
Now let’s fast-forward a bit further – to when your children face the question of who will inherit their share when they pass? Here are a few questions to think about:
- Does an owner’s share go to their surviving spouse, who may later remarry?
- Does the shared 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?
That’s a lot to think about. A cottage sharing agreement can help effectively address the inevitable issues of inheritance such as these.
PROMOTING FAMILY PEACE
My three kids love each other beyond comprehension – yet all are different as can be. At times you wouldn’t think they share the same DNA. So, differences of opinion are normal – and inevitable.
The key purpose of a cottage sharing agreement is to determine ways to keep disagreements from blowing up into full-fledged family disputes.
Differences of opinion might best be decided by a simple majority vote. This tends to work well for non-critical decisions such as redecorating or usage. More complex issues (additions to the cottage, sale to non-family members) may call for unanimous approval. An agreement may also provide for amicable approaches like mediation.
FAMILY COUNCIL MEETINGS
Consider making family council meetings part of your agreement – establishing a routine time or date for family members/owners to discuss and decide on cottage matters. Annually works for most, and meetings are best held in winter away from the property. Discussions generally involve setting a budget for operating expenses and agreed-upon repairs and improvements.
If the 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. For expenses for repairs and improvements, decide on what they should be, when they should be scheduled, and what the budget should be. 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 agreement won’t prevent the occasional sibling disagreement or family friction. Its goal is to diffuse most problems before they become an issue.
To do it right, cottage succession planning may involve several experts, including wealth advisors, appraisers, and estate and trust professionals. 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.
If you’d like to discuss the financial aspects of a cottage-sharing agreement, I’m happy to sit down with you personally to chat.
Uncomfortable as this may seem (who wants to talk about death when you could be kayaking?), a family gathering at the cottage this summer might just be the perfect time to start the discussion about a cottage sharing agreement. A conversation over smores can ease you into the idea, and maybe even bring up fond memories of what the family cottage means to all of you – past, present, and in the many years to come.
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