Estate Planning for the Cabin

By AnthonyThompson • December 22nd, 2009

lake homeHow to keep the lake home in the family.

With the increasing value of lake properties, recent publicity and news reports have highlighted a unique and growing concern involving the transfer of cabins/lake homes to next generations.

To keep the property in the family requires frank discussions and detailed estate planning well in advance of any transfer. While many of these estate issues have always existed, the family cabin, a place with often as much sentimental as financial value, has required a new approach to dealing with these issues.

Common questions include:
Do all children/intended beneficiaries wish to continue their involvement in the property?
How will the future generations pay taxes, maintenance or repairs?
How does time at the lake home get divided up and scheduled?
What if one family member wishes to sell their interest down the road?

The legal aspects of liability, ownership, and tax implications are important but so too are the day-to-day / functional operations of management, maintenance (both large and small), schedules for use of the property, and who takes the dock out each fall.

These can and should be addressed in detailed agreements which vary in form depending on the which approach best suits the family.

To avoid fighting over property interests down the road, attorneys and families have been turning to vehicles including cabin trusts, formation of an LLCs (Limited Liability Company), or tenancy agreements to keep the peace and ensure the property is enjoyed for generations to come.

Each option (and this is not intended to exhaust all options available) presents its own unique issues and benefits.

Tenancy Agreements:

Equal shares amongst siblings is a common approach and can often be devised simply (or by default). Two siblings would each inherit and take equal shares in the property. Each party is responsible for their portion of taxes, upkeep, and other expenses. Also, any party can dispose of or sell their portion as they see fit without regard to the other party.

Without an agreement amongst the parties on how to address costs or transfers, this option presents difficulties legally if the parties cannot cooperate. If sibling A wants to sell, or not pay for the new roof, tension builds and feuds ensue. An agreement is essential well in advance. Everything from limiting transfers to paying for improvements/repairs must be discussed.

Cabin Trusts:

Placing the property into a trust and designating beneficiaries who share interests in the property is another option. A trustee provides oversight, usually one of the beneficiaries, and manages the property.

Trusts also provide an opportunity, at the beginning, to set ground rules and also funding for the trust (in addition to the property itself) to take care of costs of maintaining the property.

LLCs:

Transferring property to an limited liability company is another option and provides flexibility down the road. Rules for voting and each owner’s participation can be set up in the LLCs’ operating documents. In this option, the owner/next generation owns a share of the LLC which in turn owns the property itself.

The LLC is run like any business with the same structure. It requires operating agreements, voting, etc. With voting comes flexibility to change as new issues or conditions arise.

As with any plan, it is vitally important to discuss your particular situation with your family and an attorney well-versed in these areas. Any estate planning should be tailored to fit your own family’s circumstances, and not all (or any of the options) may be suited for your situation.

Anthony Thompson is a Minneapolis attorney with a practice in construction, real estate, and estate planning. He spends a good portion of the summer at the lake in Sauk Centre, Minnesota. He can be reached through his website, http://www.mn-law.net.

Comments(1) Advice, Minnesota Tax Law

Comments

By kanishk on January 12th, 2010 at 5:27 am

your post is wonderful out of this these line is impressed me- legal aspects of liability, ownership, and tax implications are important but so too are the day-to-day / functional operations of management, maintenance (both large and small), schedules for use of the property, and who takes the dock out each fall.
belek

 

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