The personal and financial implications of successfully sharing a cottage

The Ritcey Report

Written by Lynn Healy-Goulet
April 6, 2017

Part 1: Sharing – The case for a Cottage Agreement.

A family cottage is supposed to be a retreat. But, with spring and summer right around the corner, we thought it might be a good idea to inspect what – if not handled correctly – can all too often turn out to be the dark underside of a cherished family possession.

This is the first of a two-part series intended to help families prepare for a transition challenge which, when managed without the necessary expertise, can cause unintended emotional distress and damaging financial consequences.

We have no wish to be killjoys. But if you are one of the majority of people who fail to grasp the personal, legal, financial and tax implications of cottage ownership, especially when the property is likely to be passed to future generations, read on.

The two most troubling issues surrounding cottage ownership are: sharing a cottage and passing the cottage to future generations. Both require careful discussion. Here are some of our initial thoughts about tackling the pressure points associated with the first.

Sharing a cottage

While parents are alive and involved, they usually provide the leadership and guidance about cottage-related matters for the family. If there are competing wishes for usage periods or different ideas for improvements, the parents will normally make the final decision and everyone goes along with it.

When parents are no longer involved, differences of opinion may escalate to disputes.
If all children are equal owners, no one can outvote the other. This can lead to tension.

A Cottage Agreement

A Cottage Agreement negotiated and implemented while the parents are active can make all the difference between a short and unhappy period of sibling ownership, and a stable and continuing structure for future generations to enjoy the cottage.

The Cottage Agreement fulfills two important purposes:

  1. It is a transition vehicle, safely passing the cottage ownership and control from one generation to the next, retaining the rights and pleasures of the parents while ensuring that the children will be the stewards for the next generation.
  2. It is a structure for the children when the parents are no longer involved in the cottage, ensuring that the financial responsibilities, sharing usage issues, division of labor and a fair, mutually agreeable method of dispute resolution are in place.

Sharing the joy. Avoiding the friction.

With shared usage comes the need to address some significant questions, such as access periods, the bringing of friends as guests and, if relevant, rental options in circumstances where a child cannot use the cottage personally. A Cottage Agreement helps mediate these and other problems in advance, and in writing. Even in the happiest of families unanticipated logistical issues can create friction. Who will open and close the cottage? Who is responsible for making sure the utility bills, municipal taxes and insurance premiums are paid on time? A Cottage Agreement is a perfect who-does-what list and, in the event of disagreement, dispute resolution device.

Sharing the costs

Not all the children have equally deep pockets. When the septic system goes kaput, who pays? A brother may be able to pay his share easily, while his sister may be too strapped to contribute. A Cottage Agreement can neutralize a potentially negative family dynamic by making an agreed financial provision for unanticipated expenses.

Keeping it in the family

A critical goal is to retain the cottage for future generations. Depending on family goodwill can lead to costly and damaging financial and emotional mistakes. A Cottage Agreement can effectively address the inevitable legal, financial and tax consequences of inheritance.

The Cottage Agreement discussion process will sort out the tasks, fairly distribute the burdens, ease constructive decision-making, and reduce possible resentments. Please contact me if you think I can help:

For further information and advice, please contact Dave Ritcey, Portfolio Manager at The Ritcey Team of ScotiaMcLeod®, a division of Scotia Capital Inc., Tel.: 902.678.0048