Joel's Blog
All in the family: Cabin crises
A cabin can be a breeding ground for a family feud. It’s important to plan how to pass it down through generations.
original article published in the Minnesota Star Tribune by KARA MCGUIRE
http://www.startribune.com/lifestyle/yourmoney/55459457.html
Bea Anderson and her siblings have always made decisions about their shared cabin with a handshake. With just a brother and a sister and their spouses to consult, that hasn’t so hard. But the cabin on Lake Vermillion, which has been in the family for more than 50 years, will pass to seven families in the next generation. “When there’s more people involved, then you get more opinions. We wanted to set up guidelines about how we feel the cabin can be run successfully,” Bea’s husband, Jerry Anderson, said. They needed a plan and turned to a cabin trust. Without a trust, cabins are often passed to the next generation in equal shares, with equal responsibility for the expenses and upkeep. That arrangement is known as tenants-in-common. No problem, right?
But what if the new generation of owners can’t devise a schedule for using the cabin? What if they can’t make decisions about whether to put on a new roof or add a garage? What happens if someone wants to sell his share of the cabin? In the event of a divorce or death, does the unrelated spouse get an interest, so a share of the cabin is now owned outside of the family? And if one owner can’t afford his share and ultimately files for bankruptcy, then what?
“The solutions to those [issues], if you don’t have some mechanism to deal with them, is a court proceeding. And as you can imagine, kids don’t get long so well after you serve them papers,” said Joel Mullen, a Bloomington attorney who specializes in cabin trusts. A trust lays out how a cabin is to be owned, cared for, paid for and used once the current owners pass away. It also addresses who will be the trustee. Typically, one or more of the children are selected, but sometimes a neutral third party, such as a bank without an interest in the cabin, is selected.
In the case of Bea’s family cabin, the current owners gave the future owners some time to think about whether they wanted to own art of the cabin. Jerry Anderson wasn’t surprised when everyone said they wanted in. The cabin is built on land Bea’s father, who was a miner in Soudan, Minn., bought from the mining company. “It is really special,” he said. In the event that someone says “no thanks,” families typically use other assets from the estate to buy that person’s share of the cabin.
Family wishes
Working with St. Paul attorney Frank Heers, the family created a rotation to ensure one family doesn’t get all the good holidays. They also came up with rules about how to spend money to maintain the property. Large projects that would cost thousands, like putting on a new roof or building an addition, for example, require 100 percent agreement, while with most smaller projects, the majority rules.
Most important, they agreed upon rules outlining one of the most contentious cabin issues: What happens if one family wants to sell its share? Attorneys recommend that after determining fair market value, the family wanting out sells its share to the other owners at a discount.
Without [the discount], it doesn’t really give a financial incentive to your brother or sister to buy you out. So we create that,” Mullen said. Payments could be spread out over several years so the sale wouldn’t strain the remaining owners’ finances. In addition to a cabin trust, cabin owners might also consider a limited liability corporation or limited liability partnership. Heers uses an LLC when someone out of state owns an interest in a Minnesota cabin.
He also considers it if multiple families own a cabin or the property is being rented out. LLCs can do a better job to limit the liability of the cabin owners in the event that a visitor is injured at the property and then sues. LLCs can also last forever. If those options seem like overkill, tenants-in-common should at least create a tenancy agreement, which Heers describes as “a contract between co-tenants to use the property a certain way.”
But he doesn’t create many tenancy agreements because major ownership issues, such as what happens to the property in the event of a divorce or bankruptcy, aren’t easily addressed. Ideally, estate planning attorneys say that a cabin trust would go hand-in-hand with the rest of an estate plan, especially if estate taxes are an issue.
According to the attorneys I spoke with, a cabin trust or LLC will cost you anywhere from $1,500 to $4,000. Some attorneys who usually work on a flat-fee basis may charge by the hour because creating a cabin estate plan can be messy. But the expense and hassle are likely cheaper than a mediation between several owners who have no rules to abide by and can’t come to an agreement. A tenants-in-common agreement should cost less than $1,000.
Whether a family goes with a tenants-incommon agreement, a cabin trust or an LLC, there is one advantage that comes with all of the options: Families discuss their wishes. Sometimes, the current owners just assume the younger generation wants to keep the cabin in the family when, in fact, the kids can’t wait to sell it. Other times, parents assume children who grumble about making it to the family lake house will want to unload it.
But the children have visions of spending lazy summers fishing with their kids. “Having that honest conversation really helps,” Mullen said. Easier said than done, right? Here are resources to consider. Peter McClellan had many clients who insisted their kids wouldn’t fight when they died. “Then they pass away and it’s World War III,” said McClellan, president of the 401k Latte Co. in Lakeville. So he compiled a book of inheritance stories called “Cabinosity” with the hopes that it would get families to start talking before it’s too late.
Another resource that deals with inheritance without squabbles is the University of Minnesota Extension Service’s “Who Gets Grandma’s Yellow Pie Plate?” A lot of that material is available at www.yellowpieplate.umn.edu.
Kara McGuire, Minneapolis Star Tribune • 612-673-7293.
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Next Cabin Trust Seminar Announced for October
Join Joel Mullen as he presents his next informative Cabin Trust Seminar on October 22nd at 6pm. The seminar is free and open to all who are interested in learning more about cabin trusts.
Creating a Cabin Trust After the Family Cabin has Passed to the Adult Children
I shouldn’t be surprised by the fact that I get a number of requests to create a Cabin Trust for a family after the cabin has passed to the next generation. Only then do the children realize that this asset of their inheritance was more of a problem than a gift.
They finally get it- that the problems associated with multiple ownership of a family cabin are unworkable for virtually every family (absent planning for it of course!). When one or more of the owners visits my office to discuss what a Cabin Trust can do for their family, they often look exhausted.
I can tell by looking at them they have been through the ringer. They often say, “I wish Mom and Dad had sold the cabin instead”. Their stories are sadly all the same.
One child wants to be bought out and the others can’t or won’t buy them out. Or one child uses the cabin more than the others but fails to pay their share of the expenses. Or one child is sick and tired of doing all of the work for his siblings to enjoy.
The stories are endless and sadly, almost always the same. They will tell you how close they all used to be and that their relationships will never recover.
Although I preach about the benefits of planning for multiple ownership of a family cabin before it passes to the next generation, planning after the fact can help repair strained family relationships. However, helping a family in a “shared cabin crisis” is not a picnic for the attorney.
The feelings of injustice and betrayal and distrust are hard to heal. It makes drafting an agreement difficult or almost impossible. However, if all of the family members can finally admit that this is a problem they cannot solve on their own, that is the point that much of the healing begins.