Cottage and succession planning

Want to keep the cottage in the family?
A trust and corporations may sound cool, but they are rarely the solution.

Nothing is more CANADIAN than staying at the family cottage to 'get away from it all.'

You have [mostly positive] memories of sharing intimate moments with our loved ones and chances are you want your descendants to have the same memories in the future.

In financial planning circles, it is a common trope to hear about a cottage creating family conflict.

TRUSTS are seen as a sophisticated solution of wealthy families for the intergenerational transfer of wealth. That can make sense for some assets, but not a cottage.

Trusts are as expensive to set up as they are problematic because they can distribute wealth equally among beneficiaries, like dividend distributions and capital gains. Still, you can't distribute the sentimentality of a cottage in the same way.

CORPORATIONS are another bad idea.

Making family members into shareholders means that cottage usage is treated as a shareholder benefit—a benefit taxable in the hands of the shareholder!

Tracking shareholder benefits can be costly and the Canada Revenue Agency often targets these corporations because it is very easy to mess up.

WHY ARE COTTAGES SO PROBLEMATIC?
A cottage is a single, physical asset one family can occupy at once.

If you have siblings, cousins, and other family members that are entitled to visit, you must come to an understanding that allows for sharing this space.

One family member may feel happy to use it more, but may not want to pay the property taxes and maintenance that reflect said usage level.

Another family member may not want anything at all to do with it, but can become resentful that they are responsible for its upkeep and taxes.

One way or another. This will cause problems.

SOLUTIONS:

Communicate. Communicate. COMMUNICATE!

It would help if you had a straightforward talk with your heirs. Find out what they feel about it.

If one child wants the cottage and the other does not, what can be done to split your wealth equally or fairly?

From here, you will be able to determine the best, easiest AND cheapest solution and have it in your WILL & TESTAMENT.

An advisor can see if your succession will have enough liquid assets to cover the transfer of property to the next generation and if not, how can that be done efficiently?