Welcome to summertime in Minnesota, or as many of us call it, cabin season! It is time to escape to the cabin and relax and recharge amidst swaying pines, the waves of our 10,000 lakes, and the musical calls of our state bird (not the mosquito). Unfortunately, cabins can also be the source of great stress and conflict when families avoid discussing what happens when the primary owner dies. So, let’s take a look at some of the options available to a family that is looking to transfer a cabin or similar piece of property through the estate planning process.
There are a few ways to transition real estate and unique assets, such as a cabin or lake property, upon someone’s death. Each option set forth below has pros and cons that should be discussed with an estate planning attorney.
The Estate
When a Minnesota cabin owner dies with a Will, their estate will go through the probate process. Probate is a public, court-oriented process where a Personal Representative (Executor) is appointed to identify, collect, and administer the assets that were in the deceased person’s name alone. Real estate is one of the most common triggers of probate in Minnesota. Within a Will, the cabin owner can designate that the cabin is transferred to certain people and may even carve out some additional assets to pay for the maintenance, expenses, and taxes related to the cabin for a period of time. The probate process can be expensive and time consuming, especially if the beneficiaries of the estate do not agree on the treatment of certain property, such as a cabin.
Transfer on Death Deed
A common tool to avoid probate in Minnesota is known as a Transfer on Death Deed (or a TODD). This is a simple deed that must be recorded with the county where the property exists, and the deed will trigger upon the owner’s death. The TODD does not control any other assets and provides no guidance as to the use of the property or how the new owners are to work together in the event of disagreement. While we highlight this as an option, it is not something we typically recommend for long-term cabin planning.
Trust
Another way to handle the transition of a cabin property is through a Trust. A Trust is an agreement where the owner of property (known as the Grantor, Trustor, or Settlor) transfers the property to a Trustee to be held in trust for the benefit of themselves and/or others. A cabin owner that has a Revocable Trust can include provisions specific to the treatment of the cabin upon their death or they can even create a standalone cabin trust.
Cabin Trusts can be revocable or irrevocable depending upon how the owner(s) of the property would like the value of the property treated for estate, gift, and income tax purposes. A Cabin Trust may hold cash assets and investments, in addition to the real estate, to pay for the maintenance, expenses, and taxes. The terms of the Trust provide guidance to the Trustee as to how the property is administered and can be very narrowly tailored to the family’s use of the property. This tailoring can include things like ground rules for the condition of the property (think cleanliness, responsibility for maintenance, or how to handle potential modifications), calendaring/scheduling visits like popular holiday weekends, and what happens with the tangible property and vehicles located onsite.
Perhaps most important in terms of avoiding conflict between family members, a Cabin Trust can include language about how the property may be valued and sold in the future. This can include language like a right of first refusal to keep the property in the family or what conditions must be met to initiate a sale to a third party.
Lifetime Transfers and Alternative Ownership Options
Transitioning cabin property does not have to occur solely upon death. There are other strategies and mechanisms (such as Cabin LLCs) that can help a family transfer the cabin property during the owner’s lifetime. Stay tuned for Part 2 of our Cabin Planning series where we will discuss lifetime transfer options in more detail. You can also learn more about cabin planning options in a recent episode of the FMJ Law Podcast featuring David Ness. Please click here to listen.
For any questions about cabin planning, trusts, or any other estate planning topics, please reach out to David Ness, Josh Damberg, or anyone else on our Estate Planning Team.
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