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How to stop the cottage causing headaches after you're gone

I have been feeling nostalgic lately about the old family cottage in northern Ontario.

It wasn't really the family cottage as much as it was my grandparents' home on a beautifully warm, fish-filled oasis near Kirkland Lake. It was a place where their children and grandchildren lovingly mooched every summer.

That was until my independent and practical grandmother was no longer able to manage the upkeep on her own and moved into a long-term care facility. The cottage was to be listed for sale unless any of her three children, my mother among them, wanted to buy it either jointly or individually.

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I loosely remember the negotiations among my parents and aunts and uncles. Ultimately, they each let the cottage go, a fact that, as far as I can tell, still saddens my loved ones.

Joint-ownership of a recreational property isn't always an easy sell. Peaceful co-existence can sometimes be more fantasy than reality when a family property is involved. And, succession planning can be rife with conflict and emotions.

"A lot of people don't want to talk about it," said Jamie Stewart, a Calgary-based real estate lawyer and partner with McLeod & Company LLP. "One of the fundamental keys is to talk about it now before the property goes into a transitional state."

With the cottage-owning demographic shifting into its later years, Mr. Stewart expects a lot of recreational real estate will be passed on to a younger generation within the next decade.

"It's a growing area and it's important for individuals to understand that there's a method, and there is a proper way to do things and a legal way to do things, and if they do it carefully and they focus on the issues today, then in future they're going to have less worries and less problems when mom and dad are gone," Mr. Stewart said.

Experts say sharing a recreational property can be smooth-sailing with just a little preparation. Here are some of the key areas people should be aware of:

Succession planning

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Parents should discuss their plans with their children as part of estate planning in order to avoid conflicts, especially as their loved ones are grieving.

"They assume the kids will work it out," said Allison Marshall, vice-president of financial advisory support with RBC Wealth Management. But that's not always the case.

Mr. Stewart said co-ownership agreements or "charter documents" should be established. These can take different forms, including joint-ownership, tenancy in common, a trust or a corporation.

The document sets out the rules around ownership, but also how the property is to be sold, what happens if one family member wants out or upon death or divorce.

When passing on a cottage, cabin or camp to children, parents should also consider probate fees and capital gains tax their heirs will be forced to pay. Even if the children are joint owners with right of survivorship of the property, a tax bill is triggered upon death of the parent.

That can dip into other assets in the estate and unintentionally hurt others named to other assets in the will. Families can protect their heirs from inheritance costs by taking out life insurance, which could be made payable to the estate, Ms. Marshall said.

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Rules and regulations

Not unlike a time-share, rules of use and schedules should be established in advance. This applies to both the succession planning document or if family members are considering buying a new property together. This can range from how to split long weekends and holi days, to whether teenagers have free reign to visit without parental supervision, as well as cover chores and general upkeep duties.

"In my experience, there's a certain amount of discretion left in it," Mr. Stewart said. "Everyone has to act in good faith. Everyone has to act in a reasonable manner."

But the legal document really needs to outline the financial responsibilities related to the property: taxes, utilities, annual maintenance costs and capital improvements.

Dispute settlement

Most families go into co-ownership with the best intentions, but any agreement should include rules around conflict settlement, such as use of mediation services and arbitration services.

That last thing a family want to do is end up in court, both due to the expenses and emotional strain, Mr. Stewart said.

As some family members may not be interested in co-owning inherited property or they may not get along, the agreement could also include how buyouts would occur or if subdividing the land is possible.

But RBC's Ms. Marshall, said while estate planning isn't always stress-free, it does ultimately help families enjoy their own sliver of paradise.

"There are many, many positive stories of families holding properties for generations in their family," Ms. Marshall said, "It's not always a story of doom and gloom."

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