As cottage season approaches, it’s an opportune time to remind clients of the importance of cottage succession planning.

Advisors have an important role to play in this process, according to Elaine Blades, director for estate and trust products and services at Scotia Private Client Group.

“For an investment as loaded with emotion as the family cottage or cabin is, an expert’s role of impartiality allows for the best and most practical solutions,” says Blades.

She explains that cottage succession touches all aspects of wealth management planning, and those plans must be aligned. For parents, there can be implications for retirement income and philanthropy, and for children, it can affect the wealth they are in the process of building for their family.

“While the possibility of inheriting a cottage is a nice problem to have, it’s important to start the conversation early to avoid disappointment and disputes down the road,” says Blades.

Advisors should urge clients who own cottages to have a family discussion about the matter even if they feel awkward about it. In particular, she suggests that adult children could be the ones to get the ball rolling.

“It’s in everyone’s best interest,” Blades says. “Many parents find it a relief to have the discussion out in the open, upfront.”

Many factors must be taken into account when it comes to cottage succession planning. For instance, clients must determine whether gifting now, bequeathing, or selling to the kids is the best course for all concerned.

Other factors to explore with clients include:

• Unexpected costs that can arise, including probate fees, capital gains tax, land transfer tax;

• The most appropriate legal structure: joint title, sole ownership, or held in trust;

• Tax efficient solutions;

• Relevant insurance strategies; and

• Availability of principle residence exemption.

“There is a myriad of scenarios and options which an estate planner can anticipate and advise on — and tailor both soft and hard solutions,” Blades says.

One approach to helping clients with cottage succession planning is to have them come up with the ideal outcome, and work backwards from there, determining the steps necessary to achieve that outcome.

“Look at what the family wants to have happen and work backwards,” she says, adding that it’s important for an advisor to anticipate all scenarios that could arise along the way.

IE