KEEP IT IN THE FAMILY
- Restrictions on transfer
- Prohibition/forfeiture
- Exit strategy
- Right of first refusal
- Discounted price
- Staged purchase
- Inheritance
Passing on legal ownership isn't the point of the cottage succession process, only a milestone along the way. It's just as important to make sure it stays in the family afterwards. Should a disgruntled or financially strapped child be able to sell his or her share to someone outside the family?
Without a Cottage Sharing Agreement, any owner can apply to Court to have the property sold and his or her share paid out. With a Cottage Sharing Agreement the owners agree to give up this legal right to force a sale for their mutual protection and benefit, and accept other provisions to withdraw.
One approach is to prohibit the sale entirely, but that is drastic. A child/owner may have a legitimate need to be released from cottage ownership. A preferable approach is to create a responsible exit strategy, like providing the other owners with a right of first refusal and a reasonable payout mechanism.
No one lives forever, so the Cottage Sharing Agreement provides for a safe inheritance path upon the death of an owner:
- Does the share go to the surviving spouse, who may later remarry?
- Or is it preferred that the share passes to the deceased owner's children?
- Should the surviving spouse have a life interest, ensuring continued access to the cottage?
A critical goal is to retain the cottage for future generations. The Cottage Sharing Agreement can effectively address the inevitable issues of inheritance.
AVOID ADVERSITY
- Unanimous/Majority/Veto
- Dispute resolution procedures
- Rules and regulations
No matter how co-operative the children are, it is inevitable that some issues will result in differing opinions. A prime purpose of the Cottage Sharing Agreement is to provide ways to prevent a difference of opinion developing into sibling friction or escalating into a deadlock or full-blown family dispute.
When there are choices on how to proceed, and differences of opinion among the owners, some matters may be best dealt with by a simple majority. This would work well for non-critical decisions such as redecoration or usage.
Larger and more complicated issues may require unanimous approval, such as additions to the cottage or a sale to non-family members.
The Cottage Sharing Agreement will clearly identify those issues which will be resolved by simple majority, and which ones need unanimous agreement. It may also provide for amicable approaches such as mediation in certain circumstances.
It's unrealistic to pretend that differences of opinions will never arise, or that such differences will always be defused by family goodwill. With a Cottage Sharing Agreement providing structure and dispute resolution provisions, most issues can be resolved long before they become problems.
Although every child may not be equally happy with the outcome, he or she will at least accept the result as fair because all children agreed beforehand on the method of resolution.
Minor matters, like not leaving perishable food in the frig or empty gas tanks for the next sibling's turn can be avoided with Rules and Regulations that clarify expectations and prevent inadvertent and unnecessary irritations.
FAMILY COUNCIL
Annual meeting to:
- Establish budget
- Divvy up usage
- Set repair/improvement priorities
- Delegate responsibilities
Many Cottage Sharing Agreements provide for a Family Council, a routine time or date for the family members/owners to get together to discuss and decide upon cottage matters.
Often these are annual meetings, usually in the winter off-season. Important business items include setting a budget for payment of the operating expenses and agreed upon necessary or desirable repairs and improvements. Each family member/owner will know how much must be contributed to the cottage coffers to keep all ticking along for the year, and can adjust his or her own finances accordingly.
If the Cottage Sharing Agreement provides for periods of exclusive usage, then the Family Council is the most appropriate time and place to figure out who gets which block of time.
Considering significant matters like the need to repair cottage problems or the wish to improve cottage facilities can be covered during the Family Council, with the budget taking these into account. And the Council can decide how to allocate the responsibilities for the upcoming year, as to the payment of bills, opening and closing, organization of chores etc.
As a welcome bonus, the Family Council becomes a regular opportunity for busy children and their families to get together to co-operate positively. Reinforcing family ties is always a good thing!
GETTING STARTED
- Role of parents
- Involve the kids
- Timelines to keep on track
- Get good help
- Don't delay!
Parents are stewards, maintaining the cottage for their generation and nurturing the next one to take over in turn.
It's important to have the cottage capital gains tax and financial aspects sorted out of course. It's equally important to take all available steps to ensure that the cottage succession doesn't clear the financial hurdles only to take a tumble over family issues. Taking the lead on getting a Cottage Sharing Agreement with the kids is a critical part of the parents' legacy.
It is often essential for parents to initiate the Cottage Sharing Agreement process, but consultation and involvement with the children is a crucial component. Imposing the parents' well intentioned vision of how the cottage should operate when they're no longer involved seldom leads to real "buy-in" by the children which is necessary to make a lasting success of the cottage succession.
Achieving a Cottage Sharing Agreement may seem like a complex and daunting task, but the process can be broken down into bite-sized pieces. Setting a realistic timeline to check off the stages helps keep the Cottage Sharing Agreement process moving along in the right direction and to a successful conclusion.
Expert legal assistance to start the process and keep it heading in the right direction saves time, trouble and increases the chance of success.
And there's no better time to start than today!
HOME FREE!
- Cottage Sharing Agreement process = early warning system
- Avoid the ostrich syndrome
- Put the "success" in cottage succession!
The Cottage Sharing Agreement process provides another crucial family benefit, as a reliable indicator of the likelihood of success of the ownership by the next generation.
The Cottage Sharing Agreement will add value while the parents are alive and participating, but it's critical function is to keep the cottage on track when the parents are no longer involved. The children must accept the approaches, since it's the children who will live with the results.
If despite everyone's best efforts to obtain the Cottage Sharing Agreement one or more of the children can't or won't agree with the provisions acceptable to the other owners, it's much better to learn that at an early stage.
Instead of lighting the fuse on a time bomb that now can clearly be predicted to eventually blow up in the face of the owners, the parents with this early warning can rethink and adapt the cottage succession plan to prevent a potential meltdown over the inevitable cottage issues.
But once the cottage succession plan is sorted out and the Cottage Sharing Agreement is signed up in the healthy spirit of co-operation and compromise, then all family members can be confident that their cherished cottage will remain a family treasure for generations to come!