Cabin Planning 2019

May 2019

Next weekend is Minnesota’s “unofficial” start to summer as many head north to their cabins and lake homes. There are an estimated 124,000 seasonal home land parcels in the state, according to the Minnesota Department of Revenue, with cabins making up many of the residences in counties such as Cook, Aitkin, Lake of the Woods, Hubbard, and Crow Wing. 

If you are one of these cabin owners, there is plenty that you need to consider when planning for the future of your property and your family as the family cabin can present some very unique issues. The plan should address maintenance, cost sharing and budgeting, use, dispute resolution, creditor protection and other considerations relative to the situation and long-term plan, such as financial resources, family size, marital status, and personal opinions.

Of course, there is no “one size fits all” planning option or form of ownership for the transfer and management of cabin property. The following are common forms of ownership used for purposes of cabin succession.

Direct Transfer of Ownership. A direct transfer of ownership is made by conveying an interest in the property, by deed, to the new owner(s), either as joint tenants (likely if the transfer is being made to a married couple) or as tenants-in-common (if the transfer is being made to siblings or other non-married parties).

Cabin Trusts. A trust agreement is another form of ownership and conveyance of cabin property. A trust is an agreement where a grantor transfers property to a trustee to be held, administered and distributed for the benefit of the trust beneficiaries. There are several forms of trusts that can be utilized for a cabin plan. Trusts can be either revocable or irrevocable, and there are several important considerations that may dictate which form of trust is selected.

Business Entities. The ownership of a family cabin can also be transferred in a business entity, such as a partnership or limited liability company (LLC). For purposes of this article, the discussion of the business entity option is limited to limited liability companies (LLC), which has become the prevailing option for utilizing a business entity for these purposes.

Hybrid. A structure of ownership that is becoming increasingly prevalent is the use of a trust and an LLC for the ownership of a family cabin or recreational property, especially where there is a desire to create a legacy property to be enjoyed by multiple generations of owners. The basic structure is that an LLC is formed that would take title to the property. A trust agreement is also prepared and the ownership interest in the LLC is owned by the trustee to be held, administered and distributed for the benefit of the trust beneficiaries.

If you would like to discuss the pros and cons of the above ownership options or have questions, David Ness, the head of FMJ’s Trusts & Estates group can be contacted at 952-995-9500 or david.ness@fmjlaw.com.