As Labor Day approaches and my family sets out for a weekend gathering at our cabin my thoughts turn to cabin closings. A weekend of wrapping up for the season, reminiscing over the fun adventures of summer and a degree of lamentation over the advent of fall. We will see the first dropping leaves, enjoy the crisp breezes and perhaps have a bon fire. It is a place where parents, children, siblings, cousins and grandchildren develop strong bonds. A place that means so much to my family
How do we keep the magic going? How can we keep the next generation engaged? Will they be able to get along? Can it be affordable? In my experience the challenges faced by cabin co-owners fall into four general categories:
- Scheduling: Who gets to use the cabin and when? Can friends use it? When should everyone be there?
- Expenses: Who is paying the expenses, mortgage cost, taxes and general maintenance funds?
- Maintenance: Who keeps up the cabin? Should family members who rarely use the cabin have an equal share in maintenance costs?
- Succession Planning: What happens if someone dies? Or wants to get out of ownership? Or no longer share similar visions of use, financing and tax purposes? Or gets divorced? Or goes bankrupt?
Cabins are generally owned individually in one of two ways: (1) as joint tenants with the right of survivorship (meaning that in the event of death of one joint tenant the others acquire the deceased party’s interest); or (2) as tenants in common which is a form of ownership that has no right of survivorship, in other words at the death of a co-tenant the decedent’s interest passes according to his or her will or other statutory means.
Alternatively, cabins can be held in trust, created during life or at death, containing a set of written instruction to a trustee on how manage property of the benefit of a grantor’s children and beneficiaries and can provide how to transfer ownership of the property. A limited liability company or limited liability partnership is an entity created under state law that can also be used to own the family cabin. They have the liability protections of corporation and the tax benefits of a partnership. Generally this is the most flexible method of dealing with joint ownership and transfer. The operating agreement or partnership agreement can be used to address scheduling, expense payment, maintenance and succession planning. The family can discuss upfront the options and delineate methods and formulas to deal with contributions, buyouts and asset protection.
Although some owners hesitate to bring lawyers into family matters a contract, trust agreement or organizational documents from a limited liability company or a limited liability partnership can provide a plan that anticipates and may even avoid conflict. Estate plans are all about the survivors. As we pass on a cabin and its sacred memories, what better way than providing an easy transition and giving another generation the same life opportunity.