Passing on the Family Cabin (Part I)
By Gene Walden
(From The Minneapolis Star Tribune)
The lake cabin. It’s place where families come together to bond, boat and share good times—the great American dream Minnesota style. Unfortunately, it can also become the great American nightmare.
When cabin owners pass their cabins onto siblings or other relatives, it can create such disharmony that those special bonds are broken and the good times turn to ill will and even law suits.
One cabin owner left his cabin to three nieces from different families who were not the best of friends. The three have been squabbling over minor issues ever since. “They’ve already spent almost as much in legal fees as the cabin is worth,” said Susan Link an estate and trust attorney with the Minneapolis-based Maslon law firm.
Link has seen more than a few family feuds over cabin issues. While some cabin disputes are unavoidable, there are steps a family can take to keep the disharmony to a minimum.
“You need a structure that puts someone in charge or a mechanism that forces the sale of the property if they can’t work it out,” says Link. “What you shouldn’t do is leave everything to the three kids and leave all three in control. You need to name one child as the executor (or personal representative). That’s probably my most important piece of advice.”
While the lake cabin can be a great get-a-way for a close family, a lot can go wrong when mom and dad pass it down to siblings or other relatives, says Link:
· The children get the cabin, but one of them moves away and doesn’t want to pay as much for upkeep.
· The children get the cabin and use it equally with no problem. But one of the siblings dies and his or her spouse remarries. That can make for an awkward reunion.
· Only one of the siblings really wants to use the cabin, but can’t afford to buy out the other siblings.
· All the siblings want to use the cabin, but they don’t always agree on how much to spend on maintenance and renovations.
There are some common solutions to some of those issues, but they generally require careful planning. For instance, there may an easy resolution when only one sibling is really interested in using the cabin but can’t afford to buy out his or her other siblings, says Link. “This is a mathematical problem—not an emotional issue. He may be able to buy out the other siblings over time or take out an equity loan using the cabin as collateral to buy them out.”
But other conflicts may not be so easy to resolve. For instance, if the parents leave the cabin to their three sons, things may work fine for many years—the sons and their families agree on a rotating schedule to use the cabin and all contribute equally to clean-up and repairs.
“But what happens when one of the sons gets divorced?” asks Link. “That piece of property is brought into the divorce. In Minnesota, even if only the husband’s name is on the deed, the wife still has marital rights to the property. If the property is sold, she still has to sign the deed.”
You can avoid that problem, says Link, if the parents set up a family trust. The cabin is held in the trust and the kids are given control of the trust. “A spouse normally does not have an interest in a trust. If a sibling dies, their share stays in the trust, so if the cabin is sold, the proceeds are divided up equitably.” Spendthrift protection within the trust will normally insulate the cabin from creditors or an ex-spouse.
Cabin limited partnerships
One other increasingly popular way of protecting the cabin is by forming a “cabin limited liability company (LLC)” or a “cabin limited liability partnership (LLP).”
“In that case, mom and dad would put the title of the cabin into an LLC or an LLP,” explains Link. “They would then own shares or units that they can transfer to their kids. Upon the parents’ death, the three kids would share an equal percentage of the units rather than the underlying interest in the real property. An inherited asset is a non-marital asset, so the spouse would not have a right to a share of those units, nor would she have to sign the deed.” In certain cases, the spouse may still have a right to part of the value of the property, but not to the property itself.
The other advantage of an LLC or LLP is that it limits the liability of the cabin owners, says Link. “If a friend goes to the cabin and breaks his neck, the liability of the cabin owners is limited to the value of the cabin.”
Trusts and LLPs can make cabin life a lot more serene for most families, but even those legal tactics still may not be enough to keep the peace for siblings who don’t get along, “In certain cases, when the kids are at odds,” says Link, “the best option is for the parents is to simply sell the cabin and divide up the assets.”
To read Part II, click here .