A Family Cottage Passed On Without Forcing a Sale

The situation

Dawit, a hotel front-desk supervisor, had owned a share of his family's cottage near Bracebridge since his parents passed it to their three children years earlier. He and his siblings, Biniam and Yusuf, split the property three ways, each holding an equal interest. Dawit was single, with no children, and had never given much thought to what his share of the cottage would mean for his estate. Biniam, an administrative assistant, had raised the subject a few times at family gatherings, half joking that nobody actually knew what would happen if one of them died first. Nobody had a good answer.

The three of them used the cottage on an informal rotation, split the property tax and insurance bill three ways, and generally got along about it. There was no written agreement between them, and none of their individual wills said anything specific about the cottage beyond a general instruction to divide their estate among named beneficiaries. Dawit came to Treadstone Law after a coworker mentioned that her family had been forced to sell a similar property to cover a tax bill nobody had planned for. She wanted to know whether the same thing could happen to hers.

What the estate plan needed to solve

Two separate problems were layered on top of each other, and both needed attention before either sibling's will could actually protect the cottage.

The first was tax. Under the Income Tax Act, a person is treated as having sold their capital property immediately before death, even though no real sale happens — this is called a deemed disposition. If the property has grown in value since it was acquired, that increase is a capital gain, and roughly half of a capital gain is added to the deceased's income for their final tax return. The cottage had been purchased by the parents decades earlier for roughly $60,000 and was now worth about $500,000, so the built-in gain across the whole property was roughly $440,000. Everyone in Canada can shelter one home from this tax using the principal residence exemption, but a person can only apply it to one property for any given year, and Dawit already used his on the condominium he lived in full time. That meant his one-third share of the cottage would be exposed to capital gains tax on his death, with no way to fully shelter it. Using a rough average tax rate on the taxable portion, the bill on his share alone could land somewhere in the range of $25,000 to $30,000 — money his estate would need to find quickly, in cash, with no plan for where it would come from.

The second problem was ownership itself. Dawit's existing will left his estate to a mix of nieces, nephews and a favourite cousin, with no specific mention of the cottage. If he died without changing it, his one-third interest in the cottage would pass to whichever beneficiaries were named for his residual estate — people who had no relationship with Biniam and Yusuf's plans for the property, no obligation to keep contributing to its upkeep, and every legal right to demand their share of its value. Biniam and Yusuf would then face a choice: buy out strangers to their own family arrangement, often on a tight timeline and without warning, or agree to sell the whole cottage and split the proceeds. Because none of the three had ever discussed what should happen, there was also no agreed price, no financing plan, and no process for resolving a disagreement if one arose.

What we did

1. Brought all three siblings into one planning conversation. Although Dawit was the client, a workable outcome required Biniam and Yusuf's agreement on the terms that would eventually bind all three estates. We were clear with everyone that we acted for Dawit alone and that Biniam and Yusuf should each have their own lawyer review the final agreement before signing, which they did.
2. Drafted a cottage co-ownership agreement. The agreement set out how costs would be shared going forward, how the cottage could be used and scheduled among the three families, and — most importantly — what would happen if any owner died, wanted out, or could no longer afford their share. It gave the surviving siblings a right of first refusal, meaning they would have the first opportunity to buy a departing or deceased sibling's interest at a set valuation method before it could pass to anyone outside the group.
3. Updated Dawit's will to carve out the cottage specifically. Rather than letting his one-third interest fall into his general residual estate, the new will directed it to be offered to Biniam and Yusuf under the terms of the co-ownership agreement, with any proceeds from that buyout flowing to his other named beneficiaries instead of the cottage itself.
4. Built a funding mechanism into the agreement. The three siblings agreed to each set aside a modest amount annually into a shared reserve, held for cottage-related costs and to help absorb some of the eventual tax exposure. For the portion beyond what the reserve could cover, Dawit chose to purchase a small term life insurance policy naming his estate as beneficiary, sized to roughly match the projected capital gains tax on his share — a common way to fund a tax bill that is otherwise unavoidable.
5. Explained the exemption trade-off plainly. Because Dawit's principal residence exemption was already committed to his condominium, there was no way to eliminate the cottage's tax exposure entirely without giving up the exemption on his primary home, which made no financial sense. The insurance and reserve fund were framed honestly as damage control, not a way to avoid the tax altogether.

The outcome

All three siblings signed the co-ownership agreement, and Dawit's will was updated to work in step with it. The plan did not eliminate the tax the cottage would eventually generate — that liability is baked into how capital property is taxed on death in Canada, and no amount of drafting makes it disappear. What changed was who would have to deal with it, and how. Instead of Biniam and Yusuf potentially facing an unplanned buyout of unfamiliar heirs on a tight deadline, the agreement gives them a clear right to buy in at an agreed process, funded in part by a policy Dawit is paying for now while he is healthy and the premiums are manageable.

Biniam and Yusuf later confirmed they were pursuing similar wills and, in Yusuf's case, a life insurance policy of his own, so that whichever sibling died first, the other two would not be caught the same way. None of the three has died yet, so the plan has not been tested by an actual death — but that is the point of this kind of planning. It converts a predictable future problem into a funded, agreed process well before anyone needs it, at a point when everyone involved can still speak calmly about what they want.

What you can learn from this