The cabin "up north" is an important Minnesota tradition for many families. Vacation homes are a valuable asset which must be protected by estate planning.
Not too long ago, the family cabin was often a drafty, unheated hut with a hand pump for water and an outhouse. As families became more prosperous, they often winterized the cabin, installed indoor plumbing and made other improvements.
The cabin is now the center of adventures, parties and reunions for many families.
Most often, the parents or grandparents are the driving forces promoting the cabin and keeping it in good shape. Few family members are going to challenge the wishes of mom or granddad regarding the cabin. However, once they pass away, who will carry on the cabin tradition? The family may discuss from time to time how best to keep the cabin in the family after the parents or grandparents die. While the parents or grandparents are alive, this may be a difficult issue to discuss. However, now is the very time when the issue should be considered.
There are a number of possible arrangements that can help keep the cabin in the family. The choice depends on the needs and relationships within the family. Here are some possibilities for cabin / vacation home estate planning:
Do nothing. This is the easiest alternative for many families. All they do, as the current phrase goes, is "to kick the can down the street" and wait for future problems to develop. Inaction assures that the cabin will most likely end up in probate court and may be subject to medical assistance claims involving the parents or grandparents. Furthermore, the issues of cabin use and expenses will most likely surface, leading to probable future family disputes.
Sell it to one or more of the family members. This is simple to accomplish but provides little assurance to the other family members that they will be able to use the cabin. Moreover, it provides no mechanism for the sharing of cabin expenses, taxes and insurance.
Set up a Family Trust. A trust is a separate legal entity (somewhat like a corporation). A Qualified Personal Residence Trust is one type of this arrangement. The Trust becomes the legal owner of the real estate. A Trust can establish a blueprint for how the expenses will be paid and how use of the cabin will be determined.
Create an LLC. A Limited Liability Company (LLC) is a family / business operation that is treated like a corporation but is taxed as a partnership. This provides liability protection for members of the family. LLC's are the most popular type of entity organizations today. The key to an effective LLC is through the Operating Agreement which can spell out the details of operation.
Create a Family Limited Partnership. This is very similar to an LLC but usually has more restrictions on transferability of ownership than an LLC. You and your family have invested many years of memories and dollars into the family cabin. Now is the time to sit down with a qualified professional and map out the future for you beloved home-away-from-home.
The contents of this article are for information only and is not to be interpreted as legal advice. For personal legal advice you should consult with an attorney who is experienced in probate law or estate planning.
Bill Peterson is a Minnesota Estate Planning Attorney with over 40 years of experience as a lawyer. He can help you plan for the future by creating a Minnesota Estate Plan. For more information, please visit http://www.mnestateplan.com or call toll free at 1-888-910-5297.