Family cabins are part of many people’s retirement dreams. If you own vacation property, consider special cabin planning when creating your estate plan. A cabin plan is a wealth transfer strategy designed to keep the property in the family after the owner’s passing. It can eliminate many of the challenges related to shared ownership.
Wealth Transfer Strategies
When the goal is to preserve the property for the family, the most complete planning scenario will incorporate a special cabin trust or limited liability company to hold title to the real estate. Such entities address the complexities of shared ownership by creating a framework for managing the property’s use, sometimes also earmarking funds for use in maintaining the property.
The other extreme occurs when no planning has taken place and the heirs inherit the property as joint owners. The owners then have to work out property usage, maintenance, and priorities among themselves. Often, the result is conflict. Instead of choosing this path by default, as will happen without a plan, we recommend a few simple steps to guide you in the cabin planning process today.
Steps for Creating an Estate Plan
The first step is a conversation with your family to gauge their interest in owning the property. Encourage an honest dialogue. You may discover conflicting ideas about how much your family expects to use the property or concerns about how much it will cost to maintain. Without this conversation, family members who have no interest in utilizing the property or splitting bill payments could end up as an owner. This could ultimately cause rifts within the family or the sale of the property.
If you determine there is support for sharing the use of the property, consider transferring the property to a limited liability company or a cabin trust. Then you can create a user agreement that assigns management responsibilities to one or more family members. The agreement can address questions like who can use the property, when can the property be rented, and bill payment. Include provisions in the agreement directing what to do if a family member wants to dispose of their interest. This ensures that ownership stays in the family as long as possible.
How to Fund the Operation of the Property
Either wealth transfer strategy, an LLC or a cabin trust, will allow the current owners to fund an account with seed money for the continued operation of the property after they are deceased. This can eliminate or mitigate the need for heirs of the property to pool money to pay expenses. The LLC or trust will also shield family members’ personal assets from lawsuits or creditors.
Talking to your heirs allows you to discover if any of them have an interest in owning the property. You can then make adjustments to your estate plan once those conversations happen. You might find that the property should be sold at your passing or that one heir prefers additional cash rather than ownership in your property.
After you have determined your cabin plan, notify your heirs so they are all on the same page. This can avoid unnecessary stress and heartache after your passing.