Passing the Family Cabin Outright to Your Children

  It is the end of another long week of meetings, traffic, deadlines, and stress.  You leave work and set off into the night.  The closer you get to your private hideaway, the faster your troubles seem to fade away.  There is no better medicine for your worries. 

The weekend is filled with laughter, relaxation, and family fun. The hideaway has become a multigenerational meeting place where grandparents, adult children and their spouses, and grandchildren come to play.   Perhaps it is a cabin located on Lake Vermilion, Burntside, or Pokegama.  No matter where your destination is, there sense peace and happiness.

Your goal is to pass this property on to your family. Perhaps, for both nostalgic and financial reasons, you want to keep this vacation home in the family for future generations.  However, passing on a cabin without a proper succession plan can cause unintended consequences.  For example, consider if your three children inherit your cabin outright, all three are listed on the deed.  As life often does, it may throw in a curve ball.  Perhaps, one child loses her job, can't afford her share of maintenance costs and want to sell out her share.  But, the other children are not financially in a position to buy her out.  Therefore, the distressed daughter is forced to ask the court to "partition" the cabin.  Other words, sell the family hideaway.

This is just a small example of the undesirable outcomes of inheriting or passing on property outright to your children.  This outright transfer creates "tenants in common," which refers to arrangements under which two or more people co-own a parcel of real estate without a right of survivorship. This type of co-ownership allows each co-owner to choose who will inherit his/her ownership interest upon death.    In addition, each owner can also individually sell their interest in the property. 

Tenants in common can be formed when real estate is left directly to multiple family members in a will, deeds property outright, or in the event that one passes without a will.  A reason to avoid creating this type of ownership is the right of each owner to partition.  Partition is the right of a land owner to petition the court to sell the property, if the other joint owners are unwilling or unable to buy him/her out. 

A trust, a partnership agreement, or LLC operating agreement can address how the each family members' interests are to be treated in the event of death or divorce, address the inability of one or more owners to afford maintenance, establish how capital improvement are to made (and at whose expense), and more.  Take time to make a succession plan, this will help ensure your cabin is there for generations to come.