As the snow recedes and the ice disappears from the bay warm thoughts about the family cottage are on the minds of many. Yet, too often put off until tomorrow is the necessary future planning to keep the cottage in the family for generations to come.
To engage in that planning it’s essential to consider the potential of an ever-growing number of interested parties: grandchildren and possibly nieces and nephews – depending up the particular family dynamics and ownership circumstances.
Using the wrong method to transfer ownership to heirs and descendants, such as through a will, can lead not only to feelings of false entitlement by some but more likely to family discord and possible litigation.
In most cases the best approach is to transfer ownership to a family limited liability company or LLC. By the use of an LLC the current owner, patriarch or matriarch, can design through the use of an “Operating Agreement” not only how the property is to be used by the various owners of shares in the LLC but also how the costs of maintenance, including taxes and insurance, are to be addressed. To keep the cottage in the family it’s crucial to set forth in the operating agreement limitations on the ownership, perhaps to only “close” family members, as defined by the current owners.
Similarly, the scheduling of uses by the family members often requires imaginative consideration of both the “high” and “low” seasons as well as those in the middle to provide an equitable division, for both now and in the future.
Because of the potential of successive owners having disparate financial positions and the future need for upkeep, taxes and insurance, pro rata division of the costs may not be possible. Ideally at the outset a fund or an endowment could be created, perhaps with regular small affordable contributions. And while at the outset it may seem gracious to give those with limited resources an equal share in the obligations and use rights of the cottage, to do so may cause future discord that would be best to avoid.
Cottage owners who have not yet planned for the use of the cottage by future generations are encouraged to do so before the warm zephyrs of spring direct thoughts to more pleasant undertakings. To learn more about how you and your family members can create a family limited liability company give us a call at 231-941-5878.