Dan A. Penning

There are two ways to hold title to real estate:

• directly, or
• indirectly

Direct Ownership
Real Estate Law governs the rights and duties of “direct owners”. The granting of these rights and how real estate laws impose duties on direct owners often surprise cottage owners. It’s real estate law surprises which put the family cottage at risk. Real estate laws of direct ownership do not promote keeping the cottage in the family for multiple generations, and the threat of partition and turmoil always exist.

Indirect Ownership
Entity Law, which are Laws of Trusts, Partnerships, Corporations, and Limited Liability Companies, govern the rights and duties of “indirect owners”. Entity Law is extremely flexible and accommodates the complex realities of commerce.

A Cottage Succession Plan relies on indirect ownership and addresses inherent cottage sharing problems and allows you to manage your cottage like a business. A flexible Operating Agreement will determine everything about your cottage.

A Limited Liability Company (LLC) will change the way your family owns an interest in the family cottage. Instead of a “direct ownership” in the cottage property real estate, each family member becomes an “indirect owner” of membership units in your LLC.

The Penning Group recommends moving your cottage from direct ownership to indirect ownership. A Limited Liability Company-based Cottage Succession Plan provides maximum protection for:

• you
• your family
• the family cottage

A Cottage Limited Liability Company prevents any co-owner from forcing the sale of the family cottage by filing a partition law suit.

Your Cottage Property Could be At Risk
Each summer is a chance to create family memories of good times all over again. You’ve spent a lifetime of summers at the family cottage. Your family memories live there and it’s the only place where laughter replaces ringing phones, the sun is your only clock, and keeping sand out of your shoes and picnic basket is the challenge of the day.

It’s easy to go on thinking this is how you, your children, and grandchildren will always spend summers, at your family cottage by the lake.

Few know of the hazards of real estate laws and how they can wreak havoc on your future plans of a loving peace shared between your children and heirs at the family cottage. The reality of real estate laws and rhythms of life and death could alter your hopes and dreams of harmonious sharing of the family cottage by future generations.

Did you know that real estate law does not promote keeping the the family cottage in the family for multiple generations?

Your emotions and sentiments that are woven into the family cottage may not match how your children, and their spouses, view your family cottage. A child might not want any part of the cottage because they can’t afford it, they live in another state and aren’t able to use it, or they simply want want its cash value and plan to “cash out their inheritance”, or worse yet, your child might lose their share of the family cottage during a divorce. All are messy situations without equitable solutions for all your children without a plan.

If there are no specific, and enforceable, instructions about how the cottage co-ownership should be managed you potentially place your valuable family legacy asset in harm’s way.

There is a lot to consider when planning the family cottage’s future survival. Yes, you could draw up a simple will and leave the family cottage equally to your children, but real estate law surprises put the family cottage at risk.

The Right to Partition Could Force the Sale of Your Family Cottage

This is where things could potentially go very wrong.

The American legal system is based upon common law. Our real estate laws are based upon 600-year-old laws which have not changed much over the years.

Read Your Cottage Property Deed
What could happen next depends on the first paragraph of the deed for the family cottage property.

If you leave your cottage equally to your children in the standard way as “tenants in common”, which is the traditional form of real estate ownership, any “tenant in common” (your children become co-owners) could force the sale of the cottage. This is called The Right to Partition.

The principle behind The Right to Partition is based upon English common law that no person can be required to own property. If there is a legal conflict between your children, or the co-owners of the cottage property, a court will order the sale of the cottage property if it cannot be divided in a fair way – easy to do for land, but how do you equally divide a building or a boat or a wooden dock? You can’t. The cottage property will be sold and the proceeds from the sale will be equally divided between the co-owners.