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Preserving Your Vacation Property and Family Harmony

Family cabins and other vacation homes hold memories of family fun, rest, and relaxation. When mom and dad pass away without arrangements to preserve these properties, children may disagree about important decisions to be made, leading to family disharmony. The questions that may arise include the following:

  • Who gets to use the cabin during holidays?
  • Who is responsible for paying the taxes, insurance, repairs, and maintenance?
  • What if one child doesn’t use the property and prefers to sell the cabin?

The best way to maintain good will among the family is planning for the succession of your vacation property through your estate plan. Options for planning include transferring the vacation property into a trust or creating a limited liability company (LLC) to hold the vacation property.

Transferring Property Into Trust

The first way to ensure your cabin stays in the family is by transferring it to a trust. Trust terms can determine how the beneficiaries should split property-related costs, such as taxes, upkeep, and insurance. If all beneficiaries cannot afford the costs associated with the property, you may want to set aside a sum of money in trust to pay the cabin costs for a number of years.

Trust terms may also govern the general use and management of the property. For example, holiday use could take place on a rotating basis among your children or be determined by using a lottery method. Any time a child or his or her family uses the cabin, they could be required to pay for the cleaning costs instead of requiring equal contributions toward cleaning.

If your trust states the vacation property will be transferred directly to your children, the deed would name each of your children as a co-owner. In Wisconsin, the default rule is that property is titled as tenants in common. This means that upon a beneficiary’s death, their interest would naturally transfer to their heirs, which is often a spouse. While that won’t be an issue for some families, disputes could be magnified if in-laws take possession of an ownership stake in valuable family property that holds no sentimental value for them. A significant dispute could lead to partition or a court-ordered sale of the property.

To restrict your in-laws from receiving an ownership interest in the property, you may want to leave the property in the trust to ensure that a beneficiary’s property interest is automatically passed on to the beneficiary’s children upon death. This is one way of ensuring the property stays in the family for generations. Your chosen trustee will then be responsible for paying all property expenses with trust assets.

Transferring Property to a Limited Liability Company

Another option for ensuring that a cabin or other recreational property can stay in the family is by transferring the property to an LLC. While an LLC shares many of the same benefits as a trust, there are some crucial differences. You may easily transfer LLC membership interests, which are personal property interests, directly to your beneficiaries. The property itself will be owned by the LLC so any additional transfers will not require recording deeds for the property.

An operating agreement can dictate the terms for usage and management of the property. The operating agreement can also set forth/control how property is distributed if a member passes away or the terms of a buyout if one member no longer wants to use the property and participate in the LLC. It is important for you to determine your goals when preserving the cabin property. For example, is it more important to preserve the property for future generations, or to make sure each child receives an equal portion of your estate? These issues can be addressed in the operating agreement through the buy/sell provisions.

An LLC also insulates family members from personal liability because the LLC is a separate legal entity. This could be especially appealing given the possibility of boating, hunting, or snowmobile accidents on recreational land, particularly when guests are frequent. In turn, the vacation property is also protected if one member of the LLC has creditors pursuing the member’s assets.

Thinking through these issues in advance will ensure your goals are met and make disharmony among your children less likely.

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