For many Minnesota families, this is the time of year in which the family cabin is the physical epicenter of family life and the source of many great family memories. In order to allow these memories to continue after death, many of our clients wish to create a plan for the ongoing ownership of the cabin. In order to create a realistic, long-term plan unique to each family’s situation, I usually ask the following questions:
- The Opportunity Cost of Cabin Co-Ownership. Are the children willing to forego a larger financial inheritance to be a co-owner in the cabin? Clients and their adult children sometimes need to be reminded that the retention of the cabin in a co-ownership structure is a “zero-sum game.” By requiring the co-ownership of the cabin, those same children have less of a financial inheritance that they might use for other good purposes.
- Equal Use of the Property. Are all of the children in the same position to use the property equally? Especially if one or more of the children are not able or interested in using the cabin to the same degree as his or her siblings, it is important for advisors to clarify the clients’ own intentions when creating a legal structure that would require the children to continue to co-own the cabin.
- Ongoing Sibling Issues. Do the children have good relationships with one another? Co-ownership is workable when siblings, as well as their respective spouses, have a history of amicable relationships. If mom or dad are the peacemakers now, it is important to be realistic about these relationships after mom and dad are no longer around to “keep the peace.”
- Ongoing Expenses. Finally, are the children willing to help pay his or her share of the expenses? While some clients direct that some liquid assets be allocated to a “cabin expense fund” to help pay for cabin expenses after death, these funds will ultimately be depleted. A plan should be devised for how those expenses will be paid once such an expense fund is depleted.
Possible Outcomes. The outcome of these conversations might result in any one of several different plans:
- The co-ownership by all of the children;
- The co-ownership of the cabin by only some of the children,
- Directions for sale of the cabin to one of the children at a specific price; or
- The required sale of the cabin to a third party.
As with so many elements of a thoughtful estate plan, each family’s plan should address the circumstances unique to their particular situation.