My cottage is your cottage: let’s plan for the future together!

If you’re a seasoned leave-the-home-behind on a summer weekend kind of gal, you know what we’re talking about. You better plan for Thursday night events/celebrations/even your own wedding in the balmy months. Because watch out if you decide to hold your nuptials or other special event on a sunny Saturday in the city...you’ll be on the cottagers’ black-list. Yes, for many Canadians, May until early fall means cottage time. As in, weekends spent with lake friends, not city friends, and the rush of the urbanite tempered with the calm of the cottager. Big city life typically only resumes after Thanksgiving weekend and after closing up the summer vacation home. You know the drill...putting boats away for the winter, shutting down water lines, and cleaning out fridges and cupboards to keep those pesky mice away through the cold months. And best of all, reminiscing about the great summer that passed. Yes, wonderful memories are built in those hazy days of lake or beach living. But to keep the good memories and great traditions going, you need to think about how that wonderful escape will be passed down to future generations. The emotional and financial ramifications can be significant.

If you are in line to inherit a family cottage or are ready to pass one down, you should be talking as a family now about the intentions and desires of all involved.

Family cottaging is indeed a great Canadian tradition – one that many people inherit from their parents or even grandparents. If you are in line to inherit a family cottage or are ready to pass one down, you should be talking as a family now about the intentions and desires of all involved. Passing down a family cottage or vacation home to children can become very complicated and, if not handled properly, can lead to sibling rifts and family breakdowns.

First things first

Cottage owners need to get professional financial, tax and estate advice to ensure their wishes surrounding the family cottage are handled cost-effectively and in as fair as possible a manner for all beneficiaries.

If you are hoping to inherit the family cottage, you should be going to the meetings with your parents' advisors to ensure the following three central issues are covered:

1. Taxes. If the cottage is a second residence, your parents' estate will have to pay taxes on any gain in value on the cottage when it passes down to you. With skyrocketing prices of vacation homes across the country, the tax hit could be huge, eating up a good portion of any remaining estate value.
2. Insurance. One way to potentially offset some of that tax hit could be through a life insurance policy covering the taxes when your parents pass away. You may want to get together with your siblings to discuss paying for the insurance policy premiums. It could be a way to share costs and minimize the tax hit when the property is transferred.
3. Transfer of Ownership. Who should the cottage go to? Do all the children use it equally? Will some of the children prefer to receive the proceeds from the sale, while others have a huge emotional attachment to the property? An advisor can help set up an estate plan that will be fair to all siblings, while ensuring the parents' wishes are fulfilled.

Early planning

Remember, as with most financial issues, the key to success is early planning and open communication. Even more so than a home, incredible memories and family culture are weaved into a family cottage. In the spirit of keeping the legacy going, plan for the proper succession...from your parents and for your children. Your last name has likely proudly announced your summer retreat for years – think silly names carved in wood like Rancho McDonald or Nester’s Nest - and you want to keep it that way. Cottage life and good old-fashioned fun go hand in hand.

This article was modified with permission from the writing and expertise of Terri Williams, CFP, Vice President, Editorial Services and Production with DundeeWealth. Terri is the former President of the Investor Education Fund and has over 20 years experience as a personal finance writer and consumer expert for numerous publications and companies. You can contact her at twilliams@dundeewealth.com or read more of her articles here.

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