You have spent many weekends and summer vacations at your family cabin and now hold years of wonderful memories of these times. Although the kids are gone, they are now coming back with your grandkids for great vacations. You may want to leave this asset to your family to preserve it for their future years. Should you? And if wish to do so, what steps should you consider to preserve this asset rather than turning it into a liability and burden?
A beach house, mountain cabin or other family retreat property (referenced here as the “family cabin”) is a special place for the family embodied with fond memories. Families frequently want to pass these assets onto children and grandchildren and often do so without considering the challenges associated with maintaining these properties for multiple generations.
Based upon years of observation and experience in dealing with problems with family cabins, estate planners view these legacy assets as needing special attention. Here are just a few of the questions we ask and address in documents administering the family cabin:
How will expenses associated with ownership be paid after you are gone? These include the usual insurance, taxes, maintenance and repair, assessments, redecorating, refurnishing and the like. Providing additional funds, much like a supplemental endowment fund, in an entity or trust account for these annual and periodic expenses helps preserve the property and allows the use by children, grandchildren and other generations. This cushion avoids the awkward expectation of personal contributions from each family member when their financial ability to contribute may vary widely
- How will the property be managed by multiple owners after the parents are gone?
We have found that a trust, LLC or co-tenancy is often advisable to hold the entity for multiple owners. That allows you to designate a family member as trustee or manager to administer the finances, use and governance of the family cabin. Designation of a trustee or manager who consults with and reports to other owners can be highly beneficial to keeping the property maintained, especially if there is a dedicated fund held by the entity for this purpose.
How will use of the cabin be scheduled on the calendar each year? Will the use rotate? Will spouses and/or children of a lineal descendant be able to use the cabin? If so, will a lineal descendant need to be physically present at the same time? What about use by friends or business colleagues? Will they need to pay rent? If so, will payment be paid to the entity which can use the funds for common expenses or will payment be paid to the co-owner in lieu of the co-owner’s use of shared time? Based upon our experiences in assisting co-owners in resolving disputes where guidance was not well thought out, we can recommend many successful approaches that we take in documenting use schedules.
- Future Changes.
Identification of “permissive transferees” in the governing document will address changes in the event of death, divorce, the desire to sell one’s interest and how the price and terms will be set.
These are just some of the situations that can be addressed in the planning process. Resolution of these matters can best be established by the current owner much easier than by future generations who may hold differing views on how the property should be used and managed and who certainly may have varying resources to commit to the property.
If you have an interest in having a discussion regarding your family recreational property, we would be happy to talk to you about our experience and tools you might employ to provide for your children’s and grandchildren’s future use and enjoyment.