Remember when it was all the rage for families to own lakeside “cottages”? Not only were those the site for big annual get-togethers and reunions, different members of the family would take turns using the cottage for their own vacation getaways. Ownership might pass through two or three generations, or even more. Later, beachfront condos became popular, also serving as family reunion hubs or take-your-family’s turn vacation spots. The cottage or condo has become a place full of special memories. Conversely, as Michigan attorney Randall Denha points out, “vacation homes can destroy a family if advance planning does not avoid friction.”
Perhaps that is the reason it is less common now for a vacation home to be retained through multiple generations of a family, Ann Hensley Poindexter posits in a recent issue of LifeStyle Indy. Another is the increasing number of families who live in geographically distant parts of the country from each other. What’s more, as Nolo.com observes, “even in seemingly harmonious families, it is difficult to predict how siblings will relate to one another once the parents are not around to mediate disputes.” Wisely, Nolo comments, “Having no plan for the family cottage, or even relying on a traditional estate plan, leaves families vulnerable to turmoil.”
At Geyer Law, many of our client families do own vacation property and would like to provide for its continued enjoyment by their children and grandchildren. As more effective alternatives to simply naming the children as co-beneficiaries of the property, we can either establish a family LLC (limited liability company) to own the property, with an operating agreement setting out rules for maintaining the property, or place the “cottage” in a trust.
In either case, the children’s (or other heirs’) rights and obligations are clearly spelled out, including each owner’s contributions to expenses, whether the property can be rented to non-family members, whether it can be mortgaged, and how a beneficiary’s interest can be sold.
Nolo.com adds a very important caution: Before you plan, ask! (Before leaving an interest in the property to a child, confirm that person really wants it – a child might find cottage ownership a burden, preferring to inherit other assets). That piece of advice is very much in keeping with our own practice at Geyer Law of encouraging parents to include their children in discussions revolving around estate planning.
“Cottages” can have benefits and consequences.
– by Cara Chittenden, Associate Attorney at Rebecca W. Geyer, P.C.