Family cottages hold happy memories for many Michiganders. Clients often inquire about succession planning strategies to keep the beloved getaway home in the family. A client's family dynamics and overall objectives determine the best strategy. Options available include: distribute the property under a Last Will and Testament; distribute the property to beneficiaries of a Revocable Living Trust; transfer the property with a Lady Bird Deed; or establish a Limited Liability Company to hold the cottage property (typically referred to as a “Cottage LLC”).
Clients who choose to distribute their real property by Will, have the benefit of keeping the property in their name throughout their lifetime. However, when they pass away, Probate is necessary. When only one person is on the deed and they pass away, a Personal Representative must be appointed to distribute the cottage property according to the Will. Property which is titled in more than one person's name may automatically become the property of the survivor, or their partial interest will pass through probate after they die, depending upon the wording on the deed.
Another succession planning option is to transfer the cottage into a Trust. This is typically a better option than letting the property pass by Will. When a cottage is in a Trust, the property is kept out of Probate and the details of the client's succession plan are kept private. A trust can also specify how the cottage will be maintained. Costs are involved. Property taxes, utilities, repairs and improvements will need to be paid. The trust can specify who is responsible for these costs. The Trust can allocate time for family members to enjoy the cottage, specifying rotation of specific holidays. The trust can also set conditions upon how future generations can enjoy the cottage and how ownership rights are sold or transferred.
Cottages can also transfer title after a client dies, by Lady Bird Deed. A Lady Bird Deed, or Enhanced Life Estate Deed, is a special deed which creates a type of life estate in real property. Language included in the Deed allows a client to use the property throughout their lifetime, without restriction (including the ability to sell the property if they choose). After the client's death, the property will transfer automatically by operation of law, to the person designated in the Lady Bird Deed. This option has the advantage of keeping the cottage out of Probate.
Clients who wish to share their cottage with other individuals (such as a parent and their children) or wish to use their cottage as rental property; can choose to create a Limited Liability Company, sometimes referred to as a Cottage LLC. Like a Trust, the cottage usage, maintenance, and future ownership can be set in writing. A Cottage LLC outlines the terms and conditions in an Operating Agreement. A Cottage LLC is beneficial to clients because it provides protection from creditors and ex-spouses. This succession plan also keeps the cottage out of Probate and allows the family affairs to remain private.
The tax implications, level of control in the cottage succession and usage and ultimate strategy can be very technical and should be carefully thought through with the advice of an experienced Estate Planning Attorney. Contact the attorneys at Great Lakes Family Probate & Estates for a consultation to discuss succession planning and the best way to keep your cottage in the family. Call or click today at 1-888-554-5373, [email protected]