If estate planning is about handing down one’s legacy and ensuring that loved ones are cared for in perpetuity, it only makes sense that the family cottage be included. After all, second homes often embody family values and hold their most precious possessions: memories.
Precisely because of its sentimental significance, the family cottage often becomes the site of heated conflict when the time comes for it to pass from one generation to the next. All this can be avoided with a little foresight and planning.
The Cottage Succession Plan
Simply put, a cottage succession plan is a document created in consultation with an experienced estate planning attorney which sets clear rules and standards for future owners such that family disputes may be avoided. Careful thought is required, but the work pales in comparison to the challenge of negotiating every issue with an ever-growing family of increasingly diverse opinions and values. What’s more, a well-designed plan provides the option for future family members to make peaceful exits from their share of the cottage while allowing those who remain continued joyful use.
A succession plan is more than working out an inheritance strategy. It is also a set of house rules designed in conversation with the whole family that removes ambiguity and provides a starting point for resolving potential disagreements. At a minimum, this document should include:
- A schedule for use.
- A food & cleanliness policy.
- Rules concerning guests.
- Closing up expectations.
The most successful rules policies are those that are printed out and posted in a visible place. If this seems overkill recall that you’re doing this not just for those involved now, but for generations to come—generations who won’t necessarily enjoy the closeness of nuclear family.
Handing Down the Home
The cottage succession plan’s most vital function is establishing how the property will transfer from one generation to the next. Naturally, no universal strategy exists though common approaches include:
- An outright gift while the owners are still living.
- A qualified personal residential trust (QPRT).
- A family limited liability company (LLC)
Each of these comes with benefits and drawbacks too numerous to address here. An experienced attorney can walk you through the pros and cons of these different strategies and assist in determining which is best for you.
As noted above, a good transfer plan will include an exit strategy for any family member in a succeeding generation who wants out. This means working out a mechanism by which remaining family members may buy their share without facing a steep bill all at once. Again, no one-size-fits-all strategy exists, but a good attorney can present tried and true options that suit your circumstance.
As the global Covid-19 pandemic continues to upend lives in continually unforeseen ways, there could be no better time to attend to this task. After all, protecting family unity has never been so important and hanging on to every little piece of paradise seems urgent. What’s more, a family member’s financial situation could change on a dime and anticipating how you might navigate this without provoking extra, unneeded tension is critical.
If you have a valued family cottage or vacation home—or any other asset that holds deeper meaning—talk to us about protecting it through estate planning. Contact us using the brief form below to start the conversation.