A family’s summer cottage is a place for relaxation—a break from the stresses of work, city life, and winter’s grueling months. But this refuge can quickly turn into a source of stress itself when its owners try to pass the property along to their children. What was once a place of family union can turn into divisions between siblings, arguments over money, and a storm of emotions.
A number of baby boomers who grew up spending summers at the family cottage now face the responsibility of inheriting the property from their ageing parents. And the burden of making the transaction as smooth as possible often falls on the parents themselves. A recent article in the Wall Street Journal addresses the issue by presenting a number of possible solutions to make the transfer of property as easy as possible.
- Establish early on how the property is being funded in the long term. Whether this means the original owners set up a trust to keep the property in shape, or that responsibility is given to a family member who has the means to do so, a trust is one way to ensure that unexpected expenses (for example, a roof damaged by a hail storm) that arise in the upkeep of the cottage won’t set off a panic in the family. Remember, you (as the original owner) can choose to make the trust revocable or irrevocable, depending on whether you anticipate needing to step in and alter the trust if family members can’t get along.
- Rent the home out in the off-season. Many families choose to fund the continuing care of the property by renting it out when they’re not using it, or even allowing renters in at certain peak times in the summer—a solution that results in maximum profitability while still allowing the family to enjoy the home during certain periods.
- Transfer the home to a limited liability company. An LLC is a flexible entity that has both corporate and partnership features. The benefits of an LLC are many—the original owners get to maintain some control over the estate, family members would be protected from liability if visitors are injured on the property, shares of the LLC can be doled out among family members as the owners see fit (and upgraded or revoked later, if desired), and multiple owners means one child can’t decide to sell the place on a whim.
- Gift the property to your heir(s). Check with your financial advisor to see if it would be most beneficial for you to simply gift the property to your children—if you don’t expect to owe estate tax and the cottage is a major asset, this no-fuss solution might be the best.
Remember, the more you plan in advance, the less your family is likely to squabble—and the more likely they are to enjoy the family’s summer cottage in the way you intended—relaxed and carefree.