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This cottage property on Lake of Bays in Ontario with an asking price of $3.995-million is co-listed with Chestnut Park Real Estate Ltd., and Royal LePage Lakes of Muskoka.
This cottage property on Lake of Bays in Ontario with an asking price of $3.995-million is co-listed with Chestnut Park Real Estate Ltd., and Royal LePage Lakes of Muskoka.

Personal Finance Tips

Cottage inheritance: What could go wrong? Add to ...

As Allison Marshall prepared on Friday for the drive to her parents' cottage, succession planning was on her mind.

Ms. Marshall, a Toronto-based financial advisory consultant with RBC Wealth Management Services, was concerned that her parents had not yet made official plans for their retreat on Little Rideau Lake, north of Kingston, and planned to raise the issue with them.

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Informally, the family has talked about Ms. Marshall and her sister inheriting the cottage through a co-ownership agreement. But formally, nothing is in place. "My sister and I have a good relationship, so I'm sure my parents are assuming that we'll work it out amongst ourselves."

Even for close-knit families, a lack of planning can lead to problems. Once parents have passed away and have stopped making the important decisions, "quite frequently, siblings don't see eye to eye," Ms. Marshall says. She has seen clients in disputes over the most trivial issues, including whether or not to install a dishwasher. "It can cause some very big family rifts."

Ms. Marshall is determined not to let that happen to her and her sister. "Deciding who's going to use it and pay for the upkeep is going to be important to lay out in the beginning so that it doesn't affect our relationship going forward."

Here are Ms. Marshall's tips for avoiding family squabbles over the cottage:

Have a family meeting

Communication is key to avoiding conflicts before they arise. Having the family sit down together to engage in a frank discussion about how they see themselves involved in the property today and in the future is very important. For example, don't assume it will be fine for everyone just to drop in whenever they please. Also, decide whether family members are allowed to bring guests to the cottage, and whether they are allowed to rent it out. If conflicts arise or are expected to arise, consider hiring a mediator to attend the meeting. The expense could be well worth it if the alternative is to sell the cottage outright.

Buy out other family members

If your family does not share the same passion for the cottage, or if they live too far away or don't have the financial means to afford the cottage expenses, consider buying out the other person's interest. One option may be taking out a mortgage on the property to finance the purchase. However, be careful not to overstretch your finances. A financial adviser can help to determine whether a buyout makes sense for you.



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Divide the property into separate plots

If the cottage property is large, consider dividing the land into separate plots. Keep in mind that certain municipalities have bylaws requiring a minimum lot size, so check with your local authorities to see if subdivision is an option. If the lot is subdivided, a land survey should be completed to avoid future complications. Alternatively, consider selling the cottage, then dividing the proceeds. Family members can use the inheritance to purchase another cottage if they would like one.

Prepare a written cottage co-ownership agreement with a lawyer

It may be helpful for co-owner family members to enter into a "usage agreement." Such an agreement may be especially helpful in setting out the manner in which the share of an outgoing family member will be bought out, how expenses are to be shared, and how to determine periods of usage. This will help to resolve the inevitable differences of opinion before they become disputes.

Establish a non-profit corporation to own the cottage

Family members may choose to register the title to the cottage in a non-profit corporation, especially if there are more than two or three co-owners. In this scenario, family members become due-paying members of the organization. The organization must establish a board of directors, which has various duties, such as setting out bylaws and rules relating to dues and maintenance. Although this strategy is beneficial to avoid family conflicts, it requires specialized advice and may not be suitable for everyone.



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