This week we are looking at ways of keeping the family cottage well - in the family. There are many issues that need to be addressed including financial, suitability and legal - all have become increasingly complex with each passing year.

Choosing the Right Child

Today we are going to examine suitability. What happens when you have more than one child? What happens if the child that really loves the cottage can’t afford the maintenance costs? What happens if both children want the cottage, but are unable to get along with each other?

When deciding which child or children should carry on the family cottage Douglas Hunter, author of the book The Cottage Ownership Guide, recommends people consider the following:

1. Why are you handing down the cottage
2. Who is going to have it
3. Is this something you’ve talked about with the kids
4. Have you sat around the table and said this is what we’re thinking of doing with it

Hunter says, “A lot of times the parents are going to be really surprised by what comes out of these conversations. They’re going to find out that the kids don’t even particularly want the cottage.” Hunter has found that owners think they’re suppose to leave the cottage to their children, “C’ause that’s what moms and dads do,” but that might not be the best thing for anyone.

When deciding which child or children should be chosen to carry on the family retreat the following issues need to be addressed:

1. Level of interest of each child - if he or she is not enthusiastic about cottage ownership, with all responsibilities and costs then including them in the cottage plans may result in long term incapability
2. Geography - distant children may not be able to contribute equally to maintenance and chores, which may be resented by the ones who live closer and who end up carrying the load
3. Affordability - capital gains issues aside- if your child is struggling to financially, they may not be able to afford their share of expenses especially with increasing property taxes. A trust with a reservoir of funds can be set up to pay for taxes, maintenance and repairs.
4. Personalities - if siblings don’t get along prepare a co-ownership agreement while you, the parents are still alive and able to mediate.
5. Is it possible to sever the property into separate lots for each sibling?

Compensation

If not all children are chosen or willing to carry on with the cottage, should the others be compensated or ignored? Peter Lillico, a lawyer who specializes in cottage disposition recommends parents who wish to provide some balance among the children leave the non-cottage child more of the other assets, or provide insurance to even things out.

If the estate assets are not sufficient to do this, then perhaps the cottage owning children should contribute to the compensation or allow the child who is not included a “Life Interest.” They would be able to enjoy the cottage while alive, but would not be responsible for sharing the full costs, nor be able to leave an interest in the cottage to their heirs.

Tomorrow we will look at the financial implications for handing down the cottage.

Cheers,

Julie

This entry was posted on Tuesday, March 25th, 2008 at 10:34 am and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.