What Should I Do with the Family Cottage?

This can be one of the most prickly questions when planning a Will.

 

For many families, the cottage or recreational property is more than just a place for family gatherings. It is a trove of memories that bind the family together. This is especially true if the cottage has been in the family for generations.

 

Some family members might not even see the cottage as the property of the sole title holder. To them, it’s the collective property of the family. This can make dealing with the family cottage difficult in a Will.

 

Important things to consider:

o   Do you want to keep the cottage in the family or sell it to an outsider?

o   Is the cottage your principal residence? If it isn’t, the transfer of the cottage after your death will likely generate taxable capital gains. It doesn’t matter whether you transfer it to a family member or sell it to an outsider, or when you do so.

 

Once you know what you want to do, speak to your lawyer and financial advisor about your options, some of which are set out below:

 

Option 1 – transfer the cottage to your children in equal shares
 

Pros

o   Simple, straightforward and fair to your children

 

Cons

o   Difficult if some children live far away from the cottage
o   Children have to share maintenance of the cottage, which can be a problem if they have different levels of income or interest
o   Your estate may have to pay capital gains tax

 

If you choose this option, you might consider buying life insurance to cover possible capital gains tax.

 

Option 2 – transfer the cottage to only one of your children
 

Pros

o   Good option if one child visits the cottage regularly and maintains it

 

Cons

o   You might have to equalize the inheritances through gifts of other assets and life insurance proceeds

 

Don’t be afraid to consider this option. If your children have moved to other cities or provinces, they may have lost interest in the cottage or just can’t make use of it.

 

Option 3 – sell the cottage under your Will
 

Pros

o   Good option if your children are not interested in the cottage or have moved away

o   You can sell the cottage and split the proceeds equally between your children so they can buy their own cottages (or not)

 

Cons

o   If the cottage was not your principal residence, you may have to pay capital gains tax

 

Once again, you can prepare for this capital gains tax by purchasing life insurance.

 

Option 4 - transfer the cottage to a non-profit corporation
 

Pros

o   Cottage can be kept in the family for generations

o   Membership fees paid by family members would cover upkeep

 

Cons

o   You would need to pay some capital gains tax when the cottage is first transferred to the corporation

o   Complicated procedure for which you’ll definitely need legal and financial planning advice

 

This is a creative way to keep the cottage in the family. You can transfer it, either in your Will or during your lifetime, to a non-profit corporation. Your family members would become corporation members and would have to pay membership fees. These fees would pay for the maintenance of the cottage. You can draft the by-laws of the non-profit corporation so that a family member who doesn’t pay fees would not be allowed to use the cottage.

 

Other Options
The above options may not work for you. Consult with your family members, your lawyer and your financial advisor to pick the best one for you.
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