Tag: family cottage
After our recent blog about estate matters in Ancient Rome, I was reminded that to the Ancient Greeks, the “dog days” happened when the star ‘Sirius‘ appeared to rise just before the sun in late July and August. The Greeks referred to these days, the hottest days of the year, and a period that could bring fever or even catastrophe, as The Dog Days of Summer.
Cottages, if not carefully considered in estate planning, can often bring fever and catastrophe, to families when their transfer is not properly planned in estate plans. Be it an unexpected tax liability, or unhappiness amongst siblings, cottages can cause great pains.
Today, we look at two scenarios of cottage transfer, specifically the living gift (inter vivos) and the testamentary gift (after death).
Emotion and attachment to the family cottage can run deep and go well beyond the financial value of the property. As we discussed here in 2013, proper planning is essential to avoid the kind of strife that was examined in our blog post, “Perils in the Succession of the Family Cottage.”
One way to clearly establish your wishes and see them carried out is to gift the cottage while still alive. A “gift inter vivos” is Latin for a gift among the living and is a common way of transferring ownership, particularly if you no longer use or visit the cottage. A tax advisor is an important and necessary resource when considering such a gift, as the gift of a cottage can give rise to a tax burden on the giftor.
It’s important to remember that once the cottage gift is complete, it is, technically, no longer yours and the receiver of the gift, be it a child or sibling, would be free to do as they wished…. even sell it. So it’s not necessarily the right vehicle for transfer, as it were, for every family.
Another very common means of transfer is by Will.
You are free to name your heirs to the cottage as you so choose, but often when there is more than one child inheriting, for example, a trust becomes a very good way to address possible conflicts that might otherwise arise. It also insulates the property from potential legal disputes like bankruptcy or divorce.
A trust also becomes a good way to establish responsibility for the cottage and its expenses. The Will can stipulate that funds are set aside for maintenance or yearly upkeep and those funds can ease the burden on a beneficiary who may not be in the best financial position to inherit such a gift.
As the Dog Days of Summer roll on and another cottage season soon comes to a close, proper planning for that beloved family cottage can prevent the fever and catastrophe that the Greeks were so alive to each time that Dog Star came bounding across the sky.
Thanks for reading and enjoy the sun!
Suzana Popovic-Montag & Daniel Enright
A cottage is usually the setting for family bonding and happy childhood memories; however, when it comes to estate planning, ambiguous drafting can lead to family divisions and litigation that is both unnecessary and costly. This is exactly what transpired in the Ontario Court of Appeal decision of Donaldson v Braybrook 2020 ONCA 66, discussed in the Hull on Estates podcast (https://hullandhull.com/2020/02/hull-on-estates-589-cottage-planning/).
A cottage was owned by the mother of a family, who allowed all four of her adult children, Wendy, Susan, Thomas, and Barry, to use the cottage on allocated weeks. In 1995, the mother transferred the ownership of the cottage to herself, Susan, and Thomas, “as joint tenants as to the remainder in fee”, while Wendy and Barry were listed as “additional transferees”, having a “life estate” in the cottage. This language seems perilously vague, and indeed gave rise to disputes within the family after the mother passed away. At this point, Susan and Thomas severed the joint tenancy and wanted to sell the cottage as tenants in common. Barry agreed to renounce his life interest to facilitate the sale, while Wendy refused and alleged that she was also an equal owner. On summary judgment, the motion judge held that Wendy had a life interest in the cottage with a right to exclusive use. This was reversed in the judgment by the Ontario Court of Appeal.
The Court of Appeal held that Wendy’s life interest in the property was not exclusive. The Court first looked to the wording of the registered transfer on title. This was deemed to be too ambiguous to be relied upon. Susan and Thomas were listed as transferees “without limiting their interest in any way”, which could not be reconciled with Wendy and Barry’s “life interest”. The Court then looked at evidence of the actual intention of the mother in making the transfer. The Court decided that the mother’s intention was to have her four children continue to enjoy shared use of the cottage as they had done previously, as well as intending for Susan and Thomas “to enjoy ownership interests beyond the shared right to use during their lifetimes”. As such, the Court concluded the mother’s intention was to give title of the cottage to Susan and Thomas, while maintaining a non-exclusive life-time licence to occupy for Barry and Wendy that allowed all four children to continue sharing the cottage throughout their lives. As the mother’s intention was able to be deduced by the Court, there was no need to consider the presumption of resulting trust in this case.
Much of this litigation and family strife could have been avoided by more clear and concise legal drafting, or by the mother communicating her estate planning intentions to the children during her lifetime, instead of keeping it a secret. The transfer failed to explicitly state how the life interests of Wendy and Barry would coexist with the ownership of Susan and Thomas. It appears the mother intended Wendy and Barry to have life-time licences, and a properly drafted transfer would have reflected this. This case also demonstrates how, in the absence of a reliable and unambiguous legal document, the court will first look to evidence of the intention of the transferor. Such a situation highlights the perils of succession planning for cottages, where use is often split amongst family members.
Thanks for reading – and enjoy the rest of your day!
Suzana Popovic-Montag & Sean Hess
In today’s podcast, Stuart Clark and Doreen So discuss the Ontario Court of Appeal’s decision in Donaldson v. Braybrook, 2020 ONCA 66, and what to consider when the ownership of a family cottage was changed to include the children.
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Cherished, memories, generational, and cozy, are just some of the words that evoke the magnificence that is the family cottage. It is this magnificence that leads many families to want to hold on to the family cottage as part of their estate plan. This is not always easy though, and the family cottage is often the centrerpiece of an estate dispute. As such, careful planning is key.
Those that want the cottage to stay in the family should consider a co-ownership agreement. The purpose of these types of agreements are to set out the governance of the cottage to ensure it is maintained and disputes are resolved.
Some of the key terms to consider in a co-ownership agreement include:
- how basic expenses will be covered, including hydro, telephone, maintenance, and property taxes;
- how extraordinary expenses, including capital expenses, are to be paid;
- when payments are to be made and to whom;
- which family members are allowed to occupy the cottage, and when;
- are guests permitted;
- should there be a management committee charged with making certain decisions;
- what mechanisms should be used to resolve disputes;
- the procedure for the sale or transfer by a co-owner; and
- what happens upon the death of a co-owner.
If the Kardashians can teach us anything about estate planning (and you know that given the title, there had to be a Kardashian reference), it is that family dynamics are in flux. New relationships emerge, siblings develop different values and beliefs, and sometimes, problems arise. A good co-ownership agreement is not cookie-cutter, but a carefully crafted document reflecting the uniqueness of each family member that can evolve over time.
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The holiday season is upon us, and with it comes family gatherings, buying and wrapping gifts, and travel. Suffice to say, it can be a hectic and busy time. Nonetheless, with 2018 on the horizon, many of us take the time to reflect and set resolutions for the upcoming year. Despite this, so many Canadians do not have a Will.
Why not? Estate planning need not be trying, and the holiday season is a perfect time to start considering your estate plan.
With this in mind, I thought I would highlight an article from the Globe and Mail which does a great job of highlighting issues to get you thinking about your estate plan:
- Get started – make a detailed list of your assets, liabilities, and joint assets, and think about your family’s needs and lifestyle.
- Consider your options – do you want your bequests to be absolute, subject to the terms of a trust, or gifted during your lifetime?
- Appoint representatives – think about who you trust to administer your estate and ensure that they are up for the job.
- Special circumstances – are there any beneficiaries who have special circumstances such as those receiving ODSP, that would benefit from specific trusts?
- Taxation – meet with a professional to understand tax consequences and the vehicles available to limit the payment of taxes, including the use of joint ownership and estate freezes.
- Cottages – should your estate involve the cherished family cottage, think about whether you want it sold, or shared amongst family members. If the latter, think about preparing a co-ownership agreement.
Wishing all of our readers a happy New Year!
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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.
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Read the transcribed version of "Drafting a Co-Ownership Agreement"
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Click "Continue Reading" to read the transcribed version of this podcast.
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Read the transcribed version of "Arranging an Agreement on Cottage Property"
This week on Hull on Estate and Succession Planning, Ian and Suzana continue talking about cottage and recreational properties.
Listen to "Family Cottage Cases of Ownership Transfers"
Read the transcribed version of "Family Cottage Cases of Ownership Transfers"
In this week’s episode of Hull on Estate and Succession Planning, Ian and Suzana share a few stories involving cases of ownership and the family cottage.