With the spring flowers beginning their bloom, and the warm weather slowly settling in, many Canadians turn their attention to summer plans at the cottage. With this in mind, I thought it would be apropos to consider estate planning and the family cottage.
How to best plan for the family cottage is a question I hear all of the time.
At the outset, according to this Globe and Mail article, it is important to consider whether you want to keep the family cottage in the family at all.
If the answer is yes, there are numerous estate planning vehicles available in order to transfer the cottage. As discussed in this prior Hull & Hull LLP blog, some options include making a specific bequest in a Will, where it can be left to certain beneficiaries who would receive the cottage absolutely and do with it as they please. Alternatively, should you wish to impose limitations on what the beneficiaries can (or cannot) do with the cottage, a testamentary or inter vivos trust may be more appropriate.
Of course, any decision should consider the tax implications. A prior Hull & Hull LLP podcast, found here, highlights the different options for dealing with capital gains tax in relation to the cottage.
Clearly, there are many options available and professional advice should be sought. Doing nothing is rarely a good idea. Look no further than the decision of Cowderoy v. Sorkos Estate, where a lengthy dispute ensued over whether the deceased had sufficiently transferred a farm and cottage.
Find this topic interesting? Please also consider:
On September 7, 2012, we blogged on the trial decision of Cowderoy v. Sorkos Estate. At trial, the court found that the deceased had repeatedly promised his step-grandchildren his farm and two cottage properties. Applying the doctrine of proprietary estoppel, the trial judge ordered that the promised properties be conveyed to the grandchildren. This had an effect on a separate proceeding, being a claim for dependant’s support by the deceased’s spouse. There, the trial judge considered the size of the estate, excluding the farm and cottage properties. He also, without explanation, reduced a bequest to the spouse from $250,000 to $150,000. The trial judge had also denied a request to have the two proceedings tried together.
The decisions were appealed, and the appeal decision was released on September 3, 2014.
The Court of Appeal received fresh evidence to the effect that the transfer of the properties to the step-grandchildren would leave the estate without sufficient assets to satisfy the spouse’s dependant support claim.
With respect to the issue of consolidation, the Court of Appeal held that the judge erred in not consolidating the claims.
With respect to the proprietary estoppel claim of the step-grandchildren, the Court of Appeal upheld the finding of proprietary estoppel. However, the Court of Appeal held that the promise was to bequeath the properties upon the deceased’s death, not to convey the properties. This had an impact on the appropriate remedy. The properties were to be deemed to have been bequeathed to the step-grandchildren. The upshot of this is that the properties remained in the estate, and may be subject to the dependant support claim of the spouse.
I say that the properties “may be” subject to the dependant support claim because of the impact of s. 71 of the Succession Law Reform Act. This section provides that where a deceased has entered into a contract to bequeath property, the property is not liable to a dependant support order, “except to the extent that the value of the property exceeds the consideration therefor”. This would require that the value of the consideration for the properties, being the value of the services provided by the step-grandchildren to the deceased, be determined, along with the values of the properties. If the values of the properties exceeded the consideration, then this amount would be available to be charged with the dependant support order.
In the end, the Court of Appeal ordered a new trial of the spouse’s dependant support claim, taking into account the value of the properties, and to determine the extent, if any, to which the properties are to be attached to secure any dependant’s relief order.
Thank you for reading.