People who own cabins or vacation homes or other recreational property typically want to pass these often long-time family-owned treasures on to the next generation and beyond. The thought is that through the years family members have gathered together frequently to enjoy the property and the surroundings. The current owners wish to have this beautiful property preserved in their family for as long as possible for the enjoyment of their children and their descendants.
However, without some thoughtful planning, problems and conflict in future generations are hard to avoid because of the ever multiplying number of future owners or users as descendants get married, have children, etc. It’s likely that at least one future owner will leave his or her inherited share of the property to a spouse, be unable to afford to pay the expenses associated with the property, not want to own the property, or need money and resent having an inheritance that is trapped in the property. Simply leaving property ownership to the heirs as tenants in common or joint tenants with right of survivorship leaves no plan or guidance as to how issues or conflicts may be handled or resolved. As a result, at the very least resentment between family owners could result, and at the worst lawsuits could be filed, and the property forced to be partitioned or sold.
One way to manage the succession is to create a limited liability company (LLC) to own the property. Although a trust may provide similar results, today’s blog will focus on the LLC.
The LLC concept provides for a single entity owning the property and the entity has multiple members, being family. The key to putting together a good plan with the LLC is the adoption of an Operating Agreement for the entity that addresses how the property is to be used and how issues are to be addressed. For instance, the Operating Agreement can have provisions to address the equitable use of the property. It can also contain provisions governing such concerns as transfer of ownership, the inability or unwillingness of an owner family member to pay his or her share of the expenses related to the property, and owner who wants to cash out his or her share of the property, and conflicts over the operations or maintenance of the property. It is much better to have this type of plan in place than to rely on real property ownership rules such as partition and sale.
If you are interested, our office would be happy to assist you as you go down this road of succession planning. Also, the concepts referred to above are addressed in more detail in the book, Saving the Family Cottage, 5th Edition, Nolo 2017, by Stuart J. Hollander, Rose Hollander and David S. Fry, which is available at Amazon.com.