by Mike Jaczko and Max Beairsto
We work with countless pharmacy owner families across the country and we have found that one of the most important submerged legacy assets is often ignored in the strategic wealth plan – the family cottage. Spring and summer are upon us so we thought we’d present this topic for you to read and discuss with your family. Here are some key points to consider:
A cottage agreement
As a business owner you typically (read: “should”) insist on having a shareholder’s agreement when you co-own a pharmacy business. The same need applies when siblings are going to co-own a cottage. The document should address at a minimum the issues below.
A governance structure
The next generation needs to have a way to make decisions together. Consider an annual budget agreed among the siblings in advance of the approaching summer season. How and what capital improvements should be funded? Ideally a multi-year budget would make it clear to all involved.
Furthermore, decisions around selling part or all of the cottage can be embedded in a cottage agreement drafted by a skilled lawyer. Siblings may wish to grant co-owners a “right of first refusal” in the event that one party wishes to sell his or her share.
Use of the cottage after you are gone
The answer to this question lies in which sibling(s) have the financial ability and the desire to use the cottage. Think about what the situation could look like after you are gone. Are your kids close enough to the cottage that they can and wish to spend meaningful time there? Siblings who wish to visit the cottage but live far away may realistically only be able to spend a week or two at most a year at the cottage. Other children may not wish to remain connected to the cottage on an occasional basis or not at all. It is therefore important to have a conversation with your children about their views and intentions around using the family cottage.
It can often be a mistake to force siblings to co-own a property when only one will spend time there. In such a case you may want to consider leaving the cottage to one child and equalize your estate by leaving different assets like a life insurance policy to the other children. Look for our article on estate equalization strategies for more on this.
The sharing arrangements
Once you’ve confirmed who is financially capable and willing to spend time at the cottage, and how often, it is important to decide who uses the cottage, when and on what terms. It is valuable to establish a framework that your children can refer to in the future. Involving your children in the development of such a plan may help you identify and resolve issues while you are able to assist.
Owning a cottage comes with expenses, sometimes large ones. In addition to repairs and maintenance, there are property tax, insurance, utilities, and boat storage, and bigger capital expenditures invariably are part of the future. Parents with the financial means may leave money in a trust to fund some or all of these anticipated costs if one or more of the siblings are unable to pay for their share. Think about remedies in the event that one owner doesn’t pay their share.
Generally, the future co-owners of the family cottage will need to develop a mechanism of collaborative decision-making where all the children own their own decisions and live by them. Helping them sort through these considerations while you are able to do so may save heartache for all in the future.
Mike Jaczko, BSc. Phm, RPh, CIM®, a pharmacist by background, is a portfolio manager, partner and member of KJ Harrison Investors, a Toronto-based private investment management firm servicing individuals and families across Canada. For more information on this topic, email firstname.lastname@example.org.
Max Beairsto, B.Sc. Pharm., MBA, CVA is a pharmacist and valuation analyst with Enterprise Valuators, an Edmonton-based business valuation firm that focuses on business valuations and sale advisory of small and mid-sized private companies.