In our last blog entry we identified legacy as one of the most important issues in estate planning. Mom and dad want to pass on what has meant the most to them. That often means the family cabin.
Clients may come in saying they want a plan that will guarantee that the cabin is never sold. As we discuss the issues, though, they usually recognize that is not realistic or even desirable.
It’s one thing for the family to enjoy the cabin when mom and dad are still around to handle the arrangements, deal with the inevitable squabbles – and pay the bills!
It’s another thing when the kids are in charge. The daughter in Delaware rarely makes it home. Why should she pay as much as the local brother who goes to the cabin every weekend? What about the nephews who trash the place and leave it for others to clean up? And who’s going to pay for the new roof that the cabin has needed for so long?
The family’s emotional ties to the cabin are important, but so are the annual taxes and upkeep. The last thing mom and dad would want is for problems with the cabin to tear the family apart.
For a number of families we’ve set up legal structures so that, when the kids inherit, there are already arrangements in place to deal with decision-making – and how to “split the sheets” with the least acrimony and expense if it comes to that.
We’ve urged mom and dad to not saddle the kids with property they can’t afford. At a minimum, we’ve suggested a “slush fund” to pay bills for at least a few years.
There’s also a tax angle. If mom and dad have a large enough estate to be facing estate taxes, transferring the cabin sooner rather than later may save estate taxes. If the family does not face estate tax, mom and dad can save the kids capital gains tax by transferring the cabin at their deaths and not during their lifetimes. Then, if the kids sell the cabin, they’ll pay less tax because of the “step-up” in income tax basis that assets receive on death. (See our February 25 entry.)
Nobody said any of this was easy! But it’s way easier for mom and dad to make decisions now than for the kids to do so in the heat of World War III.