Cottage Succession: Will you avoid these 3 common pitfalls?

Marissa Mah - Aug 23, 2023
When it comes to cottage succession, we see three strategies that often fail to achieve their intended outcomes – which can result in so much unnecessary upset to the family you leave behind.
Couple Cottage Vacation Kayak

Originally Posted:  August 18, 2022

Updated: August 23, 2023

It’s the height of cottage season and all the fun, relaxation, and family memories it brings.  It is that last dynamic – family – that also makes this the time of year in which many cottage owners ponder what will happen to the cottage when they’re gone.

Regrettably, too many owners don’t do the planning that will ensure their wishes are executed and family harmony is maintained, along with the legacy they’ve built and want future generations to continue building.  At The Mah Investment Group, we see three strategies that often fail to achieve their intended outcomes – which can result in so much unnecessary upset to the family you leave behind.

Pitfall #1:  Leaving your cottage to your children in your will, with the intent they share the cottage equally.

You want your children to share equally in your cottage once you’re gone, so you say so in your will.  Very often, this is too general an instruction.  The fact is that sharing a cottage brings with it many responsibilities that, if not fully and clearly articulated and assigned, can lead to family strife. 
So, consider preparing with your heirs a Cottage Sharing Agreement that gives specific answers to questions such as these:

  • How, and among whom, will sharing of the cottage be allocated throughout the year?
  • What are the rules regarding guest use?
  • How will costs be shared (utilities, taxes, insurance, maintenance, etc.)?
  • Who will be responsible for maintenance, improvements, renovations, and seasonal opening and closing?
  • What will be the decision-making process?
  • What will be the process for dispute resolution?
  • How will further succession be handled?

There is no time like the present, so get the children involved in the cottage and in succession planning, now.  On the one hand, it will help prepare them to be the next generation’s stewards of your cottage.  On the other, their success at participation (or lack of it) will help you gauge their likelihood of success in a sharing arrangement once you're gone – and you may want to adjust the agreement accordingly. Finally, when preparing such an agreement, legal advice is always strongly recommended.

Pitfall #2:  Placing the cottage in joint names with the children, in an attempt to save estate taxes.

Put simply, this might not work.
Joint ownership may allow for the bypass of probate fees, but upon your passing, you may still be deemed to have sold your share of the cottage, which will attract taxation.  You may also be deemed to have disposed of a share of the cottage when you add your children as joint owners on title because of the change in beneficial ownership of the cottage – which again, may result in an immediate tax bill.  As for your estate, if there are insufficient liquid assets, and the children do not want to sell existing assets to fund the taxes, then they will need to find other sources of funding.
Expert tax advice should be sought for the best route forward.

Pitfall #3:  Leaving the cottage to one child, and separate liquid assets of equal value to the others, in an attempt to equally distribute your estate.

Imagine this:  the children who don’t get the cottage will be forced to pay, out of the liquid assets they inherit, the capital gains tax levied on the cottage upon your passing.  Thus, one child owns the cottage outright and the others have their inheritance diminished significantly for the sole benefit of their sibling.  It’s incredibly unfortunate, but that is how estate law works.
The solution?  You could leave your entire estate equally to your children and give one child the right of first refusal to purchase the cottage from the estate. Or, you could put into place a mechanism for the children to share the tax burden.

Another important note

You may be considering changing your primary residence from your city home to your cottage.  Remember that the primary residence exemption from capital gains tax applies to just one property.  Thus, subject to the realities of the real estate market, the best decision may be to keep the exemption for your city home.

Get started now

It’s so true:  there is no time like the present.  Want to talk about your vision for the family cottage and the legacy you want to build?  We’re here to listen.


Additional resource: