How advisors untangle the family cottage conundrum
Opening up the cottage conversation
For Hickey, the work around these properties begins with conversations about insurance, estate plans, and wills. Through those conversations the cottage or cabin will come up, giving her a chance to ask if the children know what to expect when they inherit the property. She notes the example of parents who have decided to give one child the property without consulting that child, or who expect all the children to take it on when only one is interested. Hickey says she will often use this to start a deeper advanced financial planning conversation that takes the cottage property into account.
Those conversations also allow advisors to unpack some of the financial assumptions around a cottage. Some clients may elect to move to their cottage after retirement, selling their primary residence. While this may save somewhat on capital gains, any gains that the property enjoyed while it was a cottage will still have to be reconciled with. Hickey also highlights the significant maintenance costs and higher costs of renovating a remote property. Those costs are driving a sweeping change in the cottage market, according to David Little, Senior Wealth Advisor at Blue Oceans Private Wealth of iA Private Wealth in Burlington.
“I’ve got three or four clients right now that are looking to sell. They’re trying to sell their cottage. The problem is that they can’t sell them because there’s so many on the market,” Little says.
A reckoning and a reset for vacation properties
Little sees a host of factors influencing the increasingly popular decision to sell the cottage. The first issue he highlights is property taxes, which tend to be higher in rural and remote areas but have risen significantly in municipalities known for their cottages. Then comes the cost and work of maintaining a property, the eventual estate issues that it presents, or the risk that comes with aging in a property farther away from a hospital or appropriate healthcare resources. Little also sees a cultural and a generational shift away from cottage properties, leaving a cohort of inheritors and potential new buyers who have no interest in cottage living. In the case of potential heirs, Little notes that they’re often very far away now.
“It’s kind of funny that the number of clients I have, the children don’t live anywhere near them anymore. You know, we have clients who have children living in California, they’re living in British Columbia, they’re living in Nova Scotia. They’re living down in the United States. They don’t live in this area. So they don’t really see the cottage as a place to keep as the family homestead, like you would have seen in the 50s and 60s and 70s,” Little says.
