Your cottage, although a valuable investment, is more than just a property – it holds memories of childhood, gatherings, and legacy. It’s where your children learned to swim and waterski, where you host holiday weekends, and where every summer begins and ends. More than just a piece of real estate—your cottage is woven into your family story. But what happens to that story when you’re no longer there to tell it?
The notion of passing down your cottage to a child or loved one may seem thoughtful, however the realities of today make it a complex decision. What may seem like a kind gesture could unintentionally create financial burdens, strain family relationships, and cause emotional distress. Planning ahead is essential to protect your loved ones’ financial, legal, and emotional well-being after your passing.
Why More Families Are Rethinking Inheritance
Unlike past generations, many owners are choosing to sell or gift their cottage with clear terms rather than passing it down through their will. This shift is a reflection on not only the changing financial realities of today but also on modern family dynamics and personal priorities.
The Rising Cost of Cottage Ownership
One of the primary drivers of this shift is the ever-rising cost of cottage ownership. Annual property taxes, insurance costs, and maintenance fees may lead to financial strain on the next generation. Depending on the value of your estate and the financial position of your heirs, your family may simply not be able to handle these expenses. If possible, establishing a property specific trust fund may help alleviate the financial pressures that come with owning a cottage.
Family Dynamics and Emotional Tensions
Family dynamics can also play a role in the decision to pass the family cottage down. Will gifting the cottage to one lead to resentment among others? Can multiple family members share the cottage without conflict? Without an explicit plan, a spot for a relaxing get-away could quickly turn into a point of contention. Some parents go as far as to create a calendar for use and assign responsibilities for maintaining the cottage.
On the other hand, some parents have openly told their children they intend to sell the cottage -- while others are choosing to silently sell their cottage to avoid family friction. These may be practical options when there are multiple heirs involved. This is especially true if the parents foresee any issues or tensions that may arise between siblings.
At The Janssen Group, we have handled estate sales involving multiple descendants, each with their own perspective on the sale. Differing opinions on who to list with, when to list, or how much to ask for can lead to lengthy delays and unnecessary tension, ultimately affecting the properties market performance.
Adding to the complexity, today’s families are more diverse both financially and geographically – with some family members spread across provinces and countries. Some may not see the cottage as a treasured asset and instead, a costly burden.
Selling the Cottage as a Retirement Strategy
For some owners, selling the family cottage may be a strategic retirement plan. The equity in the family cottage could be used to fund a comfortable year-round lifestyle or be used to help your children in other ways – such as buying a home in today’s competitive real estate market. This option gives you more control over the timing and the price of the sale, allowing you to maximize the profit on your cottage and can even open strategic tax planning opportunities (as will be discussed next week).
Donating to a Charity
As an alternative to selling or leaving the cottage to a loved one, some owners are choosing to bequeath their cottage to a registered charity. This generous and meaningful gesture ensures that the equity of the property will go to supporting a good cause. This philanthropic impact is even more grand when you consider capital gains taxes will not apply to the charity, as it would if you or a beneficiary were to sell the property. Additionally, you will receive an official donation receipt for the fair market value of your cottage which can be used to claim a non-refundable tax credit in the year of donation or on your Final Return. Before committing to donate to a charity, ensure that the charity is willing and able to accept real estate donations.
Key Cottage Succession Considerations
- Financial Concerns: Can my heir(s) afford the cottage long-term?
- Sibling Rivalry: Will my decision lead to tension among loved ones?
- My Wish or Theirs?: Do my children even want the cottage?
- Fair and Equitable: If I leave it to one child, how do I make that fair?
- Plan Ahead to Avoid Tension: Should we draft a cottage responsibilities plan and use calendar?
- Which Decision is in Best Interest?: Is selling better for my retirement plan?
Start Planning Ahead of Time
There are many personal and practical factors to consider when deciding whether to sell or pass down your cottage, Regardless, creating a clear plan well ahead of time ensures your wishes are respected and helps to protect your loved ones from confusion and conflict down the road.
The Janssen Group is well versed in cottage succession with over 30 years of successfully navigating waterfront sales and providing advice for families and estates. Our team of trusted associates across Ontario cottage country can answer any questions you have about whether to sell or pass down your cottage while factoring in your wishes, family dynamics and the current market. A local, experienced real estate agent shouldn’t be there just to make a sale but rather to advise you on all relevant factors to help you make an informed decision.
Stay tuned for next week's post, “Cottage Succession Planning: Tax Implications and Smart Strategies – Part 2,” where we'll break down the financial side of cottage succession—including capital gains, probate fees, and ways to minimize the tax burden on your estate.
