For many, the family cabin, cottage, or vacation home is a treasured asset. Aside from its financial value, it also comes with sentimental value from the countless family memories of the time spent there. While it may be a no-brainer that you want to keep your beloved family property in the family, doing so can actually be quite complicated. Who manages the home and pays for maintenance, insurance, and taxes? How will its use be divided among family members? Those are just a few of the many questions that may arise.

If you are wondering how to plan your estate which includes a family cabin, then you’ve come to the right place. In the following sections, we listed the things to consider when passing down the family cabin or vacation home.

What to Consider When Estate Planning for the Family Cabin

1. Property Ownership

The first thing to consider when passing down the family cabin or any family asset is to evaluate its current and future ownership. Although the family cabin or vacation home belongs to the family, true ownership and rights to the property are based on the legality of the said ownership. In short, who legally owns the property has the rights to the property.

When estate planning for your family vacation property, you have to identify who the owners will be and the form of ownership they will take. Otherwise, you invite conflict and disputes that will prevent your family from enjoying the treasured family cabin you passed down. Depending on your situation, the following are the forms of cabin ownership for your beneficiaries:

Joint Tenants with Right of Survivorship

Owners of this form share the full interest in the property. If one of the tenants dies, they cannot transfer their ownership to their heirs, but the surviving tenants receive ownership of the whole property. If you pass down the family cabin to your children, they will share the ownership. If one of your children dies, they cannot pass the ownership to their children or your grandchildren. The surviving sibling or siblings will acquire ownership.

Tenants in Common

Ownership of this form involves owning individual shares of the property. These shares can be unequal among the owners and can be transferred by sale or inheritance. If you pass down the family cabin under this ownership, your heirs can sell or transfer their share to non-family members, spouses, or even creditors if they go into debt.

2. Operating Expenses

Estate planning for your family cabin or any real estate property should also include allocating money for future expenses. A fund must be available for the expenses that will maintain the property for the next 5-10 years after your death. This period gives enough time for your beneficiaries to decide what to do with the property.

The operating expenses may include mortgages, property taxes, insurance, maintenance or repairs, etc. Having a fund for these expenses lets your beneficiaries enjoy the property without being burdened with financial obligations.

3. Beneficiary Flexibility

The sentimental value you attach to your property may not be shared by your beneficiaries or heirs. Your heirs might not have the intention to own, live in, or use the family cabin for vacations. It’s best to communicate first with your intended beneficiaries and let them decide for themselves. Whatever you and your heirs decide on, your estate plan must be flexible for any future changes in your heirs’ decisions. For example, your child may love the family cabin because it’s a short distance away for weekend getaways. But, what happens if they get a job opportunity in another state or on the other side of the country? They may want to sell instead of trying to maintain the property long distance. Providing this flexibility for your beneficiaries is crucial.

4. Estate Planning Options

You have several options when passing down a family cabin or vacation home. The location, property conditions, and other special situations may require specific solutions. Below are the possible options in estate planning for your family cabin:

Will or TOD (Transfer on Death) Deed

These are the common methods for passing down properties and assets upon your death. Adding a transfer provision to your will or using a TOD deed are the easiest and cheapest ways of passing down the family cabin to your heirs. Use this method if you only have one beneficiary or there are no risks of other individuals contesting the inheritance.

However, a will or TOD on your family cabin doesn’t let you set up rules or instructions in financing or managing the property. Thus, you leave it up to your heirs to take care of the funding for the property. Also, the family cabin would become a personal asset of your beneficiary, making it vulnerable to creditors or future lawsuits. Both of which can result in the sale of the property despite wanting to keep it in the family.

Family LLC (Limited Liability Company)

A family LLC is a valuable estate planning tool for real estate properties. Forming a family LLC involves the creation of a business entity that will hold the title to the family cabin or vacation home. Once formed, the family LLC can assign family members that will hold ownership or decision-making positions.

A family LLC is beneficial for real estate properties that are used for business purposes, such as a family cabin that you can put up for rent or Airbnb. Even if the property is only used for personal purposes, a family LLC allows you to set up an operating agreement detailing the financial and operational rules of the property. The operating agreement also includes how income is divided among family members and their succeeding generations.

A family LLC does involve a cost to form and manage. But for a large family estate and complex family dynamics, a family LLC can be an ideal solution.

Cabin Trust

A cabin trust is a form of living trust which involves putting the ownership of the family asset into a trust. The trust owns the family cabin, not your children or heirs. As a type of living trust, the property is protected under the trust while you are alive and upon your death. The benefits of this estate planning tool include protection from probate, taxes, and creditors. You can also provide specific directions for funding, administration, and preservation of your family cabin after your death.

Depending on your needs and special circumstances, you can choose a trust format that holds only the real estate, a revocable trust that is beneficiary-flexible, or an irrevocable trust. Trusts are powerful tools for estate planning because of their specificity and flexibility.

Start with a Conversation

Whatever estate planning tools you use for passing down your family cabin, the essential thing is to plan and execute it thoroughly. Understanding your family members and their needs is critical, as well as communicating to them your intentions to keep the peace among heirs and smoothly transition ownership. If you need us to weigh in on your family cabin situation or any estate planning issues, call us for a free consultation today!

Estate Planning for the Family Cabin: Passing Down Family Properties