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27 August 2025

Docking Your Plans - How To Keep The Family Cottage From Causing A Family Shipwreck

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Sorbara Law

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In Ontario, nothing says "summer" like the family cottage. It is where marshmallows are roasted, attempts at barbecue are made, and where canoe paddles are lost.
Canada Family and Matrimonial

In Ontario, nothing says "summer" like the family cottage. It is where marshmallows are roasted, attempts at barbecue are made, and where canoe paddles are lost. However, as idyllic as cottage life may be, the question of what happens to the cottage when you die can spark some serious fireworks.

Cottage planning is a sub-speciality of estate planning. It sounds fancy, but at its core, it is about answering one deceptively simple question: Who gets the dock keys? Without proper planning, your heirs might end up in a heated battle over more than just who gets the best bedroom with the lake view.

Why Cottage Planning Matters?

Unlike other assets, a cottage comes with more than just bricks, boards, and shingles. It carries memories, traditions, and a healthy dose of family politics. Without a clear estate plan for such a delicate asset, you could potentially risk:

  • Sibling and children dockside theatrics.
  • Unexpected tax bills, which could be large enough to sink your summer budget.
  • The possibility that the cottage may have to be sold just to settle the estate.

The Estate Planning Connection

In Ontario, estate planning is not just about deciding who gets family plates that no one uses. For cottage owners, it means figuring out:

  • Capital Gains Tax: When the cottage changes hands, the Canada Revenue Agency may take its slice of the pie, and I do not mean the blueberry kind.
  • Ownership Structure: Should the cottage be in your name, jointly owned, or tucked inside a trust? Each choice has different legal and tax consequences.
  • Succession Wishes: Who will own it, use it, and maintain it? And, let's be honest, who will clean it?

Trust Agreements

A trust agreement can be your best friend when it comes to cottage succession. Think of it as putting the cottage in a safety deposit box for your loved ones, with rules about who can access it, when, and under what conditions and/or circumstances.

A trust agreement can assist with:

  • Avoiding probate delays and fees.
  • Spread or defer tax liabilities when the cottage changes hands.
  • Ensure that the cottage is passed to specific beneficiaries per your wishes.
  • Allows for multiple generational planning, keeping ownership stable.

In short, a trust agreement could assist your heirs from turning the dock into a courtroom witness stand.

Cottage Agreements

Even if you plan to pass the cottage directly to your heirs, a cottage agreement may be a helpful tool and a hero of peacekeeping.

Such an agreement can outline:

  • A schedule for who gets it when, because everyone wants the August long weekend.
  • Allocates chores like lawn care, dock repairs, and winterizing.
  • Sets out rules for major renovations, repairs, and upgrades.
  • Defines who pays for property taxes, insurance, and utilities.
  • Outlines rules for renting out the cottage and restrictions on the same.

Cottage Agreement v. Trust Agreement: What is the Difference?

Stay with me, yes, there is a difference between a trust agreement and a cottage agreement.

The trust agreement is about how the cottage is owned and passed down to generations, while the cottage agreement is about how the cottage is used and managed by the current owners. I think of it as a family user manual.

Top Five Cottage Planning Mistakes

  1. Assuming your kids will "figure it out". They may figure it out... in court.
  2. Ignoring Capital Gains Tax. You cannot ignore it, but proper planning can help reduce or spread out the burden.
  3. Not making a cottage agreement for multiple owners. Verbal promises are not sufficient.
  4. Failing to plan for upkeep costs. Ownership Disputes often start with, " I am not paying for the roof".
  5. Waiting too long to plan. Planning only works before the family soap opera starts and your neighbours tune in with popcorn.

Final Thoughts from the Dock

A well-planned cottage succession is not just about avoiding taxes. It is also about preserving the joy and not the grudges that come with the lakefront living. Whether you use a trust, a cottage agreement, or both, the goal is simple: to pass down memories without passing down the mess. Keep your cottage a place for laughter and not legal battles.

I hope that this article has provided you with some helpful information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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