Joel's Blog
What If One Of My Kids Doesn’t Want to Keep the Cabin After We Pass?
Cabin Trusts and “Like Kind Distributions”
What can you do if one of your kids doesn’t want to keep the cabin or vacation home after you pass? First of all, when considering whether a Cabin Trust is right for any family, I always encourage my clients to simply ask the kids whether they would want to keep the cabin when the parents pass away.
If all the kids say they don’t want to keep the cabin, then there’s no need for a Cabin Trust in your Will or Trust planning.
But more often than not, one or more of the children wants to keep the cabin and one or more don’t. In these situations, we allow for all the children to opt-in or out of the Cabin Trust at the time the parents pass away.
Typically, a time is set in the Will or Trust itself when the children can elect to be in or out of the trust. For those children who decide to opt out, we can compensate them with other estate assets.
This is called a “like kind distribution” and it works as follows:
Imagine that a family has an estate plan which includes a trust for the cabin or vacation home. The Cabin Trust lays out the parameters of the cabin’s use, equity, taxes, expenses, maintenance, and buy-out provisions.
The estate plan also has an option for each child to consider and that is-
Do I want to elect to be a part of the cabin or not?
If a child decides within the timeframe allowed (generally six months after the surviving parent passes) to opt-out of the cabin, that child receives what would have been their share of the fair market value of the cabin in other assets.
Let’s look at a ‘real world’ example:
So, in this example, we assume there are four children and the cabin is worth $400,000.00.
If one child opts-out of the cabin trust, then they may receive the equivalent value of their share in other assets such as retirement accounts or proceeds from the sale of the family home. This “like kind distribution” ensures each child gets an equal inheritance but doesn’t force children who would prefer not to be a part of the cabin trust to share ownership with their siblings.
Again, the goal of every estate plan should not stop at the successful transfer of assets to the next generation. Rather it should also be about preserving family relationships after a loved one passes. The like kind distribution approach is just one of many ways we accomplish this goal when a family cabin or vacation home is part of your estate.
Cabin Owners With Adult Kids – It’s time to act as the parent one more time!
Have you ever heard that the only normal family is a family that you don’t know very well? Well as a trust and estate attorney, I can tell you that no truer words have ever been spoken.
I have helped families from all sorts of differing backgrounds prepare their estate plan, and I have learned that it takes some prodding to discover if any underlying issues might complicate the estate. However, even for the so-called “perfect family,” there’s one question I always have to ask.
Do you own a family cabin or vacation home?
Why? Because I know this can potentially be a huge problem for the family if a loved one passes. If the answer is yes, I know we have a problem to solve and the family doesn’t even realize what a huge problem it is.
If you have read my earlier blog posts you will know that this is a problem for any family that owns a cabin. Why? Because if the cabin is left to the children, you have an unmanageable situation left for the children to deal with.
• Who gets to use the cabin and when?
• What if some children want to sell while the others don’t?
• Who will winterize the cabin and maintain the dock, etc?
All of these problems will be magnified when the parents are gone. Therefore it is essential to deal with the issue of the cabin now to preserve family relationships after the parents have passed.
The simple solution to this problem is to incorporate a Cabin Trust or LLC into your estate plan. The Cabin Trust lays out the important parameters:
• Use
• Equity
• Taxes
• Expenses
• Upkeep
• Buy out provisions
This eliminates many of the disagreements and FIGHTS that the children are bound to have in its absence.
However, with each foreseeable problem that a cabin can create for the kids, the solutions are varied and specific to each family.
One of the big mistakes my adult clients make after they decide to incorporate a cabin trust into their estate plan is to get each child’s input on each decision. If they do this, they will soon discover why the cabin trust is so important. The kids will disagree about many of the issues needed to be resolved.
I have learned through some painful lessons that the parents need to act as the parents once again and make the decisions that they believe are the best fit for all of their children.
Every family will have one child that is more vocal than the others and often the parents side with this child over the others because as we all know, the squeaky wheel does get the grease. However, it is often the case that the louder child isn’t always the one with the most equitable ideas.
When it comes to the “care & feeding” of the family cabin or vacation home, most of the time it is still the parents that:
• pay the bills
• winterize the cabin
• maintain the docks
• keep a schedule for cabin use
Once the parents have passed, these duties fall to the kids. Depending on how well your children work together, this can make things extremely difficult. Especially if one or more children wants to sell the cabin or vacation home at some point. Now, without a cabin trust, you have a family fight in the making that could last for years.
Therefore, the parents must decide how the cabin trust for their family cabin or vacation home will work. And with the help and guidance of a trust and estate attorney who is experienced in drafting cabin trusts (see How to Choose the Right Cabin Trust Attorney) the parents can deal with these issues now and save and even strengthen their children’s ongoing relationships after the parents have passed.
How To Choose The Right Cabin Trust Attorney
Choosing the right cabin trust attorney to draft and execute a cabin trust for your family’s cabin can have repercussions in your family for decades to come. Consider this: most attorneys, including the vast majority of estate planning attorneys, have never drafted a single cabin trust.
Most attorneys that specialize in estate planning are concerned primarily with the efficient transfer of your assets to the next generation. There is nothing wrong with this focus. That is what the majority of our clients pay us to do.
However, in my opinion, trust and estate attorneys often miss what I think should be the vocation of any estate attorney: to preserve family relationships AFTER your assets pass to the next generation.
What do I mean? Any skilled estate attorney can efficiently plan to pass your assets to the next generation while minimizing estate taxes and eliminating the need to probate the estate. However, not enough of us ask the most important question. How will their kids relate to each other after the parents are gone?
Now, let’s consider the family cabin as it relates to this question. An estate attorney concerned primarily with the efficient transfer of your assets to the next generation will view the cabin in the same manner as they view all other assets.
In most cases, the attorney will draft a plan that leaves all assets you own to the next generation in equal shares. And without further consideration or counsel, the client will see their wishes fulfilled.
The client wanted to minimize estate taxes, avoid probate, and have an equal distribution of their assets to the children. For the average estate attorney, he/she will view their job as complete and the client walks away happy. Or so they think…
The client will never know of the disaster that awaits the family as a result of this plan. In this plan, all assets were passed to the children in equal shares and for most assets this is a fine distribution scheme. However, when a family cabin is involved, it is the rule and not the exception that the children’s relationships will be forever changed.
The family cabin is a special, almost sacred place for a family. And leaving this special asset to the children as equal owners will cause serious rifts among the children left behind. The arguments WILL start shortly after the parents pass away.
Typically, one child who doesn’t use the cabin as often as the others will propose a sale. The children who do still use the cabin will protest and the first of many fights will begin. And I must warn you that these are not small fights. These are the fights that last a lifetime. Don’t believe me? Let me prove it to you with the following story:
Let’s say for example that the family cabin is left to three adult children in equal shares, just as the parents wanted (or at least thought they wanted). The oldest child, we will call him Joe, has always loved the cabin and Joe spends most weekends there, fishing with his family. He is very grateful his parents left his family this wonderful legacy.
The middle son, Rob, also loves the cabin and would use it more frequently but there is a problem. Joe is at the cabin virtually every weekend and although Joe invites Rob and his wife and kids to join him up there, the truth is, Rob’s wife doesn’t care for Joe and his wife.
They get along in social settings but the idea of spending an entire weekend with them is an exhausting proposition for Rob’s wife. Rob’s wife is no shrinking violet either and pressures Rob to tell his brother that it is only fair that they be able to use the cabin alone.
Rob after weeks of agonizing, finally asks Joe if he would reserve a few weeks for his family and not visit the cabin those weeks. Joe is really hurt by this.
Forget for a moment whether he should be or not, the truth is Joe thought that mom and dad would want the kids to enjoy the cabin together. After all, that is what they did as kids and moreover, that must have been the reason mom and dad left the cabin to all of them.
Joe tells Rob that he will continue to use the cabin as he wishes and hopes that Rob and his family will join them. Rob is furious and worries what his wife is going to think, or worse, tell Joe what she thinks.
Joe and Rob’s sister Lucy, who lives in Seattle with her husband, have intended to go to the cabin but really can’t get away. They have been having a number of discussions lately about their finances and things are not looking great. They know that cabin is worth $600K and they could really use the money.
They ask Joe and Rob to consider buying her out. However, Rob and Joe tell her it is impossible. They can’t afford to do that. They remind her that no one told her to move to Seattle and she is welcome to visit the cabin any time and she should send a check for her share of the taxes as soon as possible because they are past due.
Lucy is angry and upset. She feels that her parents left the cabin to all of them, but the truth is only her brothers get to use it and she can’t even get her share of the inheritance out of the cabin. Moreover, she feels as though she is subsidizing their inheritance. It just doesn’t seem right.
Now, let me ask you…who is the bad guy here? Is it Joe, Rob and his wife, or even Lucy? This is, of course, a rhetorical question because, as you can see, there are no bad guys in this story.
Joe is using the cabin the way his parents intended. Rob and his wife should be able to enjoy the cabin too. And Lucy feels cheated. Can something like this be resolved?
You should know this is not a fictional story. It is a real life example of an estate plan that appeared to accomplish the client’s goals but, in reality, went very wrong. It went wrong because the attorney did not consider the future family consequences of the plan.
If the attorney was concerned about the children’s ongoing relationships, would he/she have proposed this plan? The truth is, if the parents were correctly counseled as to the consequences of this plan, they would have come to the conclusion that no asset, including the family cabin, is worth the children fighting over.
This problem could have been easily prevented. They should have either forced the sale of the cabin through the parents Wills or drafted a Cabin Trust or LLC that lays out the parameters of the cabin’s use, equity, taxes, expenses, and buy-out provisions.
If it is truly important to the parents that the cabin be shared by the children, then the estate attorney must work with the parents to craft the right estate plan. They need an estate plan that not only efficiently transfers their assets to the next generation, but preserves and even strengthens their children’s ongoing relationships.