Keeping it in the Family: Working Family Cabins into Estate Planning

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Credit  Michele Loughrey, Attorney
&
Eric Parker, Attorney


Respite, Renewal, and Relaxation

Ah, the family cabin. It’s a place of respite. Renewal. Relaxation. Long days spent boating and swimming. S’more-filled evenings under a starry sky. Knock-down, drag-out, we’re-not-speaking-anymore battles between siblings after mom and dad pass away and no one can agree on what to do with the place.

Let’s talk about how to keep the focus on the relaxation side of things, shall we?

Even if one couple or family owns a cabin outright, ownership can become muddled when the initial owners pass on—especially if there are multiple adult children (and in-laws) or other potential inheritors involved. Your family might get along like a house on fire now, but if that house is a cabin and Joe doesn’t want to pay taxes on it and Sheila refuses to mow the lawn and Eduardo thinks you should sell the whole thing, conflict is inevitable.

Side note: For purposes of this article, we’ll talk about cabins—but this can apply to any secondary property, such as timeshares or hunting land. We’ll also refer to “mom and dad” and “adult children/siblings,” but we recognize and fully respect that cabin ownership, family structure, and inheritance preferences vary wildly.

If you want your family cabin to remain in the family for generations, it’s imperative that you make a plan. Sooner rather than later, please.

To kick things off, hold a family meeting. (Yes, seriously.) Facilitate a candid conversation about everyone’s wishes and expectations regarding the cabin. Mom and dad might have a clear plan in mind, whether or not it has been formalized as part of an estate plan. Little brother might announce that he plans to move to California and doesn’t want to be burdened with the cabin since he won’t be able to take advantage of it. Big sister might have assumed that she’d inherit everything since she’s the oldest. You don’t need to work out all the logistics right now—this conversation is simply about gathering input and establishing everyone’s perspectives.

If you need help framing up this initial conversation, contact an experienced estate planning attorney who can make a personalized checklist for you. (At Johnson/Turner Legal, we always offer free 30-minute introductory consultations.)

Once you establish what everyone wants out of the cabin, you can move forward with a plan.

There are a few different paths you can take:

Option 1: Do nothing. This might seem appealing up front—it means no one has to make any decisions and nobody needs to spend any money. Yet. The problem is that if mom and dad pass without a proper plan in place for the cabin, your family will end up going through probate. Even if they have a will. Probate is expensive and can be a very drawn-out process, ripe with headaches. Plus, if mom and dad (or the primary cabin owners) go into a nursing home or there are other demands on the estate, the cabin won’t be protected.

Option 2: Opt for a “Quit Claim Deed.” This allows a property to be transferred from one owner/owners to another (e.g., from mom and dad to their adult children). The upside is that this option keeps the property out of probate and won’t affect medical assistance eligibility (if after the five-year lookback period). The downside is that if one of the new owners faces a divorce, tax lien, judgment, or other legal issue, the cabin is vulnerable.

Option 3: Implement a Transfer on Death Deed (TODD). A TODD does just what it says—transfers property in the event of the owners’ death. This option keeps the cabin out of probate and has tax benefits. However, a TODD only transfers the property and still doesn’t handle any of the other logistics, e.g., who will be responsible for maintenance? How will taxes be split? Who gets to spend the holidays there? A TODD also might not be the best option if there are multiple beneficiaries.

Option 4: Set up an LLC or partnership. This option also keeps the cabin out of probate and has the added benefit of limiting liability if accidents or injuries occur on the property. However, an LLC/partnership can be expensive and involves yearly accounting. Plus, if you live in Minnesota but your cabin is in another state, you need to adhere to the laws of that state, which can get messy.

Option 5: Set up a cabin trust. This is the option that we often recommend at Johnson/Turner. A trust keeps the cabin out of probate and allows for more control. A trust puts everyone on the same page and documents specifics including shared expenses, scheduling, and buyout options. A trust can also protect against creditors.

Each option has pluses and minuses. Which one is right for your family? Consult with a qualified estate planning attorney to find out. Our free consultation is a great place to start. We can weigh in on the best option for your situation.

We’ll help you tackle the logistics so the only thing your family has to fight about is who gets the last S’more.