Last updated: May 09 2024

Cottage Succession Planning: Tax & Family Considerations

Cottage ownership is a long-held Canadian dream.  Due to shifting demographics over the next decade, many cottages are set to become family battlegrounds—as ownership of vacation properties along with other family assets will be transferred from aging parents to their children.  Beyond the significant financial implications that will be triggered by this asset transfer, often the emotional aspects can be even more difficult to contend with.  Cottage succession planning is an important exercise that clients should undertake well in advance of their deaths to avoid family issues and tax implications. 

One of the biggest mistakes that families make is trying to come up with a cottage succession plan without finding out what the family wants to do.  We refer to this as a “commonly-held, expressly articulated future vision.”  Your client should be thinking about the answers to the following types of questions:

  • Who Wants the Cottage? – Some parents are surprised to discover that the children do not want the cottage.  Or, perhaps, that one of the children who lives far away is interested in having an equal interest in the cottage after the parents pass away.  The only way to find out who wants the cottage is to ask. 
  • Is the Cottage to be Used as a Family Gathering Place? – Some families love the idea that the cottage is to be a family gathering place.  The idea is to have the extended family use the cottage over the decades that follow.  For some families, it is important that the cottage be in the family not only for the children, but also for the grandchildren.  In this day and age, families seem to spend less and less time together.  For families with cottages, the reality can be quite different.  Instead of getting together for weddings and funerals, the family can see each other regularly through the common use of the family cottage.  It becomes an asset that connects the extended family together and keeps them interacting with each other on a regular and recurrent basis.
  • For How Long? – Some families have a vision which involves keeping the cottage in the family for as long as possible.  They will sometimes look for structures which can allow the cottage to be held in the family not just for one generation, or two generations, but for as long as the family wishes to keep the cottage under group use and common ownership.

Clients who want to own, want to sell or are considering how to transfer a cottage to their heirs will be looking for advice.  Advisors who can provide guidance on how to navigate and minimize the financial and emotional aspects of cottage ownership will be well positioned to attract this growing demographic.

Learn more at the May 22 CE Savvy™ Summit which will include case study scenarios and examples on topics of concern to your clients’ financial peace of mind.