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Saving the Family Cottage : A Guide to Succession Planning for your Cottage, Cabin, Camp or Vacation Home
Keep your vacation home in the family with the definitive guide to succession planning.
Now published by Nolo, Saving the Family Cottage is written in plain English by estate planning and succession attorney-experts Stuart Hollander and David S. Fry, to help you plan to pass on your vacation home and keep it in the family. Complete with real-world examples and stories of cottage "wars" gone awry, this book breaks down the essentials for passing your cottage to the next generation.
Find out how to:
* figure out which estate planning entity is right for you and your family
* develop a cottage schedule
* deal with co-owners who fail to pay their assessments
* decide whether to establish an endowment
* allocate control between and within generations of owners
Although the term "cottage" is used throughout, the practical advice from the authors applies to any property that a family wants to retain. With information for owners, attorneys and financial planners, this guide to succession planning makes a complex problem understandable and offers concrete solutions to what can be a delicate family matter.
The 2nd edition acknowledged the addition of Attorney David S. Fry as an author of the book and successor to the author's cottage law practice. The updated 3rd edition is now published by Nolo and has been revised to include the latest state and federal rules that apply to vacation home owners, including fully up-to-date estate tax information.
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May 06, 2009
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Excerpt from Saving the Family Cottage by Rose Hollander
Chapter 1: Trouble in Paradise
Time for a PlanAt Monica's family cottage, memories linger like ghosts: grandmother and her formality, fishing poles on the porch, sunlight on the lake, "Lassie Comes Home" moments, scavenger hunts and Monopoly till midnight. Today, Monica can walk into the cottage's toy closet and it still has that certain smell. "There are so few places in life that seem to not change so much," she says. "That is one of the reasons I love our cottage. It always stays the same."
And indeed, with proper estate planning, family cottages can be used by generation after generation, passed from hand to hand like a precious heirloom, to be filled with new memories, new little feet and new togetherness, as those revered elders smile down from the mantel.
Monica and her siblings wanted to create an estate plan that would keep her lakeside cottage in her family, so her children and their children's children could share sunny, lazy summer days together.
To achieve that, Monica definitely does need a plan--but not just any plan. She needs a new form of cottage succession planning that helps protect future generations from showdowns over everything from scheduling to selling the property. Too many cottages go from happy idylls to combat zones, with forced sales, severed relationships and siblings hurling letters like this at one another: "I am finished with this whole thing. I am tired of dealing with attorneys and you three. I want out now!" Hardly the stuff of sunlit memories.
The terrific appreciation of lakefront and view property in the past generation has changed the way some in the family view their cottage, making strife all the more likely. A cottage may be the most valuable asset a family owns. While some heirs think of cottages as sacred family retreats, others may resent having their inheritance tied up in the old place. Stepchildren and spouses who did not grow up at the lake often have weak emotional ties to the cottage but strong ties to its cash value. Some siblings never got along.
All of this sets the stage for trouble in paradise. Having no plan for the family cottage, or even relying on a traditional estate plan, makes the cottage and families vulnerable to turmoil. Formal cottage plans change the way families own their interests in the cottage.
Instead of holding a direct interest in cottage real estate, family members own membership units in a limited liability company (LLC ), a form of business entity described in Chapter 8. The LLC owns the cottage real estate, the cottage furnishings, and perhaps the boats. Instead of transferring interests in real estate to their children, founders transfer the membership interests in the LLC to the cottage heirs. This method means the relationship of the members' children to the cottage is governed by the LLC operating agreement, not ancient common law doctrines. The operating agreement determines everything about the cottage, including scheduling, contributions to expenses, permissible owners, renting, maintenance, and whether the property can be mortgaged. It prevents forced sales, but allows for graceful exits. Chapters 9 through 14 show you how to adapt the LLC operating agreement to your family's needs.
See an Expert: You'll need an attorney's help. With the exception of Louisiana, which derives its laws from the French Civil Code, the real estate law principles described in this book generally apply to cottages throughout the United States. States, however, can and do deviate from classic common law principles, so the principles stated here may not describe the outcome under the law of the state in which your cottage is located. Please consult a qualified attorney in your state for advice on what's best for you and your family cottage. (And if you're Canadian, the limited liability company is not available to you--but because both the U.S. and Canadian legal systems are based upon English common law, the discussion of real estate law, and practical considerations about sharing a cottage, should still be useful.)
Time for a PlanThere is no time like the present to make plans for your cottage's future survival. Don't be tripped up by the most common reasons owners die without a plan. We've seen them all, and none of them help when you are gone and your children (and the cottage) run into trouble. Common reasons to avoid making a cottage succession plan include:
Inability to solve an identified family problem. "John always argues with his brother but they both love Lands End. I don't know what I'm going to do."
The cottage will probably deepen any discord between children and it may end up being sold.
Idealism. Parents want to believe that everyone will live happily ever after in the cottage. This relieves them of the need to plan. It will all work out just fine.
The partition cases I've handled are proof that it doesn't always work out just fine.
Unwillingness to impose wishes on heirs. "I don't want to rule from the grave."
Even children who can work together need a plan to avoid wrangling over scheduling, taxes, and maintenance. A founder who develops a plan in consultation with the heirs has the authority to make final decisions on how the cottage will operate. Often the founder will serve as a tiebreaker in unresolved debates between heirs.
Lack of foresight.
"What, me plan?"
Bad things are more likely to happen without a plan.
Unwillingness to make the required effort or to incur the expense of developing a plan.
"I'm giving them the cottage, isn't that enough?"
Founder-developed plans generally cost less than heir-developed plans because the founders (usually a married couple) are more likely to see eye-to-eye than their children. If you are giving them the cottage, finish the job and give them a plan to ensure they enjoy the cottage too.
The First StepStuart's mother had a pine sideboard that she just loved. She kept her precious china and glassware in it and dusted her treasures all the time. She really wanted Stuart to have the sideboard and had already picked out the wall in his house where it would go. The only problem was he had never liked the Early American sideboard, which didn't fit in his Arts and Crafts house. Porcelain and glass didn't excite him--perhaps a holdover from his days in earthquake-prone San Francisco. Sure enough, when he inherited the sideboard, he gave it away.
Imagine if, instead of a sideboard, it had been a share of a cottage. There are many good reasons why somebody wouldn't want a share of a cottage: the expense of maintaining it, bad memories, geography, a spouse's feelings, and (especially) a preference for the cash value it represents.
The cardinal rule of cottage succession planning is that, before giving it to a child, parents must confirm a child really wants a share of the cottage.
This is not as obvious or simple as it sounds. Parents love the cottage--if they didn't, they either would have sold it or made arrangements to sell it at their deaths. A parent's emotional ties to the cottage can blind the parent to the child's feelings about it. A parent may have a hard time understanding why his child might not want an interest in the cottage, even if it requires the child to make financial sacrifices (as the parent may have done to acquire and keep it).
A mother of three once asked Stuart to prepare a cottage succession plan. She was the third-generation owner and some of her grandchildren (who would be fifth-generation owners) already had fallen in love with the cottage. She wanted to be sure that the cottage would be available for them to use and ultimately acquire.
This client--let's call her Mary--must have had some hint that trouble was in the wind. She brought one of her daughters to the first meeting. The daughter expressed great love for the cottage and said she and her brother would want a share of it, but worried that her older sister, who had no children and lived far away, might not want any part of the cottage.
The childless daughter, Ann, attended the next meeting. She politely but emphatically stated she didn't want a share of the cottage. This seemed to take her mother by surprise. Stuart reviewed Mary's financial statement and assured Ann that her mother would have the resources to give her cash rather than a share of the cottage. Ann, who entered the meeting quite anxious, left with a smile on her face. Mary left the meeting stunned, but later amended her estate plan so that Ann would not receive a share of the cottage. By forcing her children to reveal their feelings about the cottage, Mary surely averted great heartache within the family.
Resource: Why it's hard to keep vacation homes in the family. The problems with passing on a vacation cottage and keeping peace in the family aren't just legal; they're emotional and even sociological. In the pioneering book Passing It On: The Inheritance and Use of Summer Houses, the late professor Judith Huggins Balfe described sociological aspects of summer home ownership. It was the first book to tackle why it is difficult to share and pass on summer homes. Professor Balfe and her brother, Kenneth Balfe, also wrote a companion workbook that contains useful questionnaires, intended to help families with succession planning.