Estate Essentials: Will Planning And The Family Cottage: Preliminary Considerations

Will planning, in general, requires balancing a number of factors.¹ One often looks for a tax efficient manner to transfer their assets to one or more intended beneficiaries following their death. One should turn their mind not only to the monetary value of the assets, but also the sentimental value attached to them. One asset that is known to have not only monetary but also sentimental value is the family cottage. In circumstances where an asset like a cottage (or other recreational property) will likely form part of one’s estate and will ultimately be owned by two or more individuals, the proactive testator² will turn their mind to issues associated with co-ownership. While taking into consideration what distribution structure will achieve their goals, there is commonly a desire to ease the burden on the executors and trustees, as the case may be, who are tasked with carrying out their wishes.

There is not one “best way” to deal with a cottage (or other recreational property) in a Will. Each situation is different and should be properly thought out. A starting point for determining the ideal way for a testator to deal with their cottage is to think through considerations related to their specific wishes and circumstances. Some examples of these types of considerations include, but are not limited to, the following:

1. The testator’s wishes – for example, is the testator hoping that the cottage remain in the family? Is the intention for all children to have ownership of, and an equal opportunity to use, the cottage?
2. Whether there is anyone that will expect to receive the cottage – while a testator has the freedom to deal with their assets in their Will as they choose, they will often turn their mind to the wishes and expectations of intended beneficiaries. Doing so may help inform the estate planning process generally and inform the specific steps to take to ensure that the testator’s wishes are in the best position to be upheld. For example, this could come into play in the situation where there is one child who has been managing the maintenance and upkeep of the property for years and it is their understanding they will ultimately be the owner of the cottage. Despite this understanding, other children might have an expectation they will receive an interest in the cottage by virtue of the fact they are a child of the testator. A testator may wish to have a discussion with their children (and/or other family members) as part of deciding how to plan their estate.
3. If there is more than one intended beneficiary of a cottage, the relationship between them – with co-ownership comes the need to communicate with one another and come to agreement on matters such as the schedule for use, how costs and expenses will be paid, and whether any improvements are desired and/or needed. If the intended beneficiaries do not get along while the testator is alive, receiving the cottage as a result of the testator’s death (an emotional time) is unlikely to bring them closer.
4. Whether all the testator’s intended beneficiaries want to be cottage owners – one of the beneficiaries may live in another jurisdiction with no desire to have an interest in an Ontario cottage which they will generally not be able to use and enjoy. It is also possible that despite living in Ontario, an intended beneficiary might not want to be a cottage owner for a variety of reasons (e.g., they might already own a cottage, they might not be used to visiting the cottage regularly and/or they may not want to take on the costs and commitment of ownership).
5. The financial position of the intended beneficiaries – as mentioned above, there are costs associated with cottage ownership. It is possible that one or more of the intended beneficiaries might not be in a financial position to take on these costs. If one of the possible beneficiaries is in a better position to handle the costs of cottage ownership, then options may include gifting the cottage to that beneficiary and equalizing the others (assuming there are sufficient assets to do so) or providing for a right of first refusal to that beneficiary who is in a better financial position (so that they can choose to purchase the cottage property).

The answers to the above questions can help a qualified Ontario estate planning lawyer guide the testator through available options and highlight relevant legal and tax considerations. At a high-level, this may include a discussion of whether the Will should be structured to provide for an outright gift to the intended beneficiaries or if the cottage property should be held in trust for a period of time (perhaps with funds available to cover the costs and expenses), as well as a discussion of tax exposure on death and the implications of such tax exposure (while an in-depth discussion of this goes beyond the scope of this blog, considerations include estate administration tax (also known as probate tax) and possible tax on capital gains, and possibly land transfer tax considerations).

Taking the time to engage in proper planning with respect to assets such as a family cottage can result in a smoother estate administration and can help to ensure a cottage owner’s wishes are upheld. We encourage you to reach out to any of our estate planning lawyers for more information on estate, trust, and tax planning, including the best approach for your individual circumstances.

Footnotes

1. Will and estate planning varies from jurisdiction to jurisdiction. This blog is based off of the laws of the province of Ontario.

2. The testator is the person whose Will it is.

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.