Cottage Planning Solutions
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 lawsuit.
Real Estate Ownership
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 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.
You Create the Rules
When you transfer your family cottage property to a legal entity (LLC) it means Entity Law, and not Real Estate Law, will govern the relationship of owners. Indirect ownership of your cottage through an LLC allows cottage owners to use laws intended for a business entity. You are able to customize an arrangement specifically for your family's wishes. You are in control. You get to decide how the family cottage will be operated, financed, and most importantly, you are in control of how the cottage will pass from one generation to another.
7 Key Common Cottage-Related Concerns
Within our Cottage Law Practice we have identified 7 key areas of cottage-related concerns which are addressed and resolved within a successful Cottage Succession Plan. These concerns include:
- The possibility that ownership of a part of the cottage will pass into the hands of a non-family member as a consequence of death or a divorce.
- What to do if a family member is not able or not willing to meet any or all financial commitments to the cottage.
- The financial impact on the cottage if a family owner files bankruptcy, or a portion of the cottage's interest is levied by a creditor of a family member.
- How to solve internal conflicts between family member about how the cottage is operated, maintained and improved.
- A family member wants to "cash out" their interest of the family cottage.
- Disharmony and even possible litigation between siblings when parents are no longer around to mediate a peaceful resolution.
- What happens when a child, or children cannot afford to keep the cottage.
The Right Legal Entity for Your Cottage
Circumstances need to be evaluated for each family and cottage property. There are a few special cases where keeping your cottage under direct real estate ownership is the simple solution to a complex situation. Two cottage planning solutions which should be examined, and discussed with your cottage law attorney, are Life Estates and the Ownership Agreement.
Dan Penning examines each aspect of your estate and cottage property including strategies to employ to avoid uncapping cottage property taxes. The advantage you gain using a cottage law expert is knowing you will have created a flexible legal entity to fulfill your hopes and dreams of protecting, preserving and saving your family cottage for use by all future generations.
Click here to read more about creating a Cottage Succession Plan
