- The possibility of ownership of part of the home passing to someone other than a family member as a result of death or divorce.
- What to do if a family member cannot or does not want to fulfill some or all of the economic commitments of the cabin.
- The financial impact on the cabin if a family owner files for bankruptcy, or a portion of the interest on the cabin is collected by a creditor from a family member.
- How to resolve internal conflicts between family members about how the cabin is operated, maintained and improved.
- A family member wants to “cash in” his interest in the family cabin.
- Lack of harmony and even possible litigation between siblings when parents are no longer present to mediate a peaceful resolution.
- What happens when a child or children cannot afford to keep the cabin?
-directly, gold
-indirectly Website design By BotEap.comDirect ownership
The Real Estate Law regulates the rights and duties of “direct owners”. The granting of these rights and the way real estate laws impose duties on direct owners often come as a surprise to cabin owners. It is the surprises of the real estate law that put the family home at risk. Directly owned real estate laws do not promote keeping the cottage in the family for several generations, and there is always the threat of partition and confusion among co-owners. Website design By BotEap.comIndirect ownership
The Entities Law, which are the laws of trusts, partnerships, corporations and limited liability companies, govern the rights and duties of “indirect owners.” Entity Law is extremely flexible and adapts to the complex realities of business. Website design By BotEap.comOne of the first things to learn is how you own the title to your cabin. See the first paragraph of writing. If it says “Joint tenants,” you and other co-owners are “direct owners” and your cabin is always at risk. Any co-owner could force the sale of the family cabin using his right to file a “right to partition” lawsuit. Website design By BotEap.comFamily cottages are generally governed by 600-year-old real estate laws. The American legal system is based on English common law and the principle behind the “right of partition” is that no person can be required to own property. Think about that for a minute. If you plan to pass on the family cabin to your children equally as “joint tenants” and one of your children prefers to have the “cash value” of your inheritance and instead of a part of the family cabin, you can choose to terminate your relationship with his co-owners of the cabin. If the siblings cannot afford to “buy” a sibling and there is no way the cabin property can be divided equally, a court could order the sale of the property and divide the proceeds equally between the co-owners. His dream of spending happy family moments at the farmhouse for future generations has been lost. Website design By BotEap.comTo protect the family cabin for future generations, change the ownership relationship from “direct owners” to “indirect owners” by creating a limited liability company (LLC). The LLC is governed by flexible entity laws that have provisions for multiple owners and generations of family ownership, versus real estate laws that favor the rights of the individual real estate owner. Website design By BotEap.comIndirect ownership of your cabin through an LLC allows you to use laws intended for business entities. You can customize an arrangement specifically for your family’s wishes. You have the control. You can decide how the family cabin will be operated, financed, and most importantly, you are in control of how the cabin will pass from one generation to the next. Website design By BotEap.comWhen you create a Cabin Limited Liability Company, you transfer ownership of the cabins to your Cabin Limited Liability Company. The LLC becomes the new owner of the cabin real estate, furniture, boats, vehicles, and other equipment. You and future generations of your family will become “indirect owners” of the cabin. Instead of a “direct ownership” interest in the cottage real estate, you own “membership units” in the cottage LLC and can then transfer “membership interests” in the newly formed cottage Limited Liability Company to their heirs. Website design By BotEap.comWork with an experienced cabin law attorney to review your family cabin ownership as a whole. A skilled craft law attorney is in a position to advise you on short and long term legal strategies and structures to avoid “uncovering” your property, property tax appeals, and related tax matters. Website design By BotEap.comA rural law attorney works with the family to develop a plan for the management of the cottage, address the scheduling of the use of the cottage, how to equitably resolve power struggles between siblings for use during the peak season months, how to finance and possibly equip farmhouse, and develop a financial plan for a “graceful exit” to accommodate a sibling who does not want to share in the use, care and expense of the family farmhouse. Website design By BotEap.comAt the center of the Cabin Succession Plan and the LLC is the Cabin Operating Agreement, which sets out the rules for the management, co-use and future of the cabin. Care must be taken to accommodate each owner’s wishes because each owner must be willing to sign the operating agreement once it is written. Website design By BotEap.comYou will have to choose between two types of LLC based on when you plan to implement the LLC. One is “Immediate Cottage LLC,” which takes effect when the cottage owners finalize their operating agreement, file the articles of organization in their state, and sign a deed. The other is a “Springing Cottage LLC” that allows the owner of the cottage to maintain full control throughout its lifetime and takes effect only when the owner of the cottage dies. The process for drafting the Cottage Operating Agreement is different for each type of LLC, but the objectives of the agreement are the same. Your artisan law attorney will advise you on the procedures for both types of LLC. Website design By BotEap.comThe Cottage Operating Agreement determines everything about the Cottage, including but not limited to:
- Contributions to expenses
- Who can be an owner?
- Rental
- Maintenance
- Scheduled use
- Annual budget
- Capital improvements
- Amendments to the operating agreement
- Modifications to the Company’s Bylaws.
- Merge the company
- Dissolving the company
- Set a cabin usage fee for members
- Select or replace company directors
- Mortgage the cabin
- Rent the cabin
- Change the company to a different legal form
- Endowment contribution
- Modify the operating agreement
- Approve construction
- Approve renovations that alter the character of the cabin.
- Increase the member’s share of property insurance, property taxes, and standard living expenses
- Sell the company
- Selling the cabin