Two Estate Planning Options for Keeping Your Cabin in the Family
In Minnesota, many families own vacation cabins where they can get away as a family to relax and de-stress removed from the chaos of everyday life, chores, and responsibilities. In many situations, these cabins have been part of a particular family for multiple generations. Understandably, families want to do whatever they can to preserve these special places for future generations to enjoy.
The problem with leaving real estate in equal shares to two or more beneficiaries, such as your adult children, is that direct ownership poses considerable risks. One child might encounter financial difficulties that make creditors come calling and place everyone’s ownership interests in jeopardy. Another child might face a divorce, which can involve an unrelated ex-spouse’s share in the cabin’s equity. And although it might be difficult to imagine right now, there’s always a chance one child might have no interest in maintaining or keeping the property; if he or she decides to cash out his or her interest down the road, it could force the others to partition and sell.
In light of these risks, there are two major estate planning alternatives: a revocable “cabin trust” or a limited liability company. Which one you choose depends on your family’s needs and goals.
The Cabin Trust
Cabin trusts are a type of revocable trust, which means they can be changed and dissolved with relative ease according to the terms of the trust, although they become irrevocable upon the maker’s death. These trusts are designed to deal solely with the cabin; that is, the cabin is the only property in the trust and all the terms of the trust are specifically geared toward the care, maintenance, and use of the cabin. The trust agreement is administered by a trustee, who can be a family member but may also be a neutral third party, such as an attorney or even a bank. Cabin trusts are an especially popular choice for families interested in shielding themselves from liability to creditors, as Minnesota courts have ruled that trusts containing specific “spendthrift” provisions are out of the reach of creditors.
The Limited Liability Company
Another option for protecting your family cabin is setting up an LLC. To establish an LLC in Minnesota, you must comply with all the corporate formalities, including drafting an operating agreement and filing articles of incorporation. In this sense, an LLC might be a bit more work than a trust, however, the limited liability aspect of an LLC provides significantly more insulation from personal liability when it comes to any personal injuries that may take place on cabin property. An LLC is also generally more flexible than a trust when it comes to making changes to terms, as a majority vote is all it takes to amend the LLC’s operating agreement.
Estate Planning Solutions for Your Family
At Jeffrey P. Scott & Associates, LLC, we work with families with a wide variety of estate planning goals. If you have a vacation home or family cabin you would like to protect for your loved ones, we can help. Call us today our office.
This website has been prepared by Jeffrey P. Scott & Associates, LLC for informational purposes only and does not, and is not intended to, constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.