Cottage Law
Why should you plan for the future use of your cottage?
Because you want your grandkids to experience an adventure at the lake-house, not just listen to your stories about it.
Sharing the family cottage or vacation home is becoming problematic as sons, daughters, grandchildren and blended families try to deal with a myriad of issues everything from the logistics of scheduling summer weeks at the cottage to whom is responsible for decorating and maintenance. Even more distressing is the financial responsibility associated with transferring a cottage from one generation to the next. If a succession plan is not in place, this real property asset can create a huge tax bill when the current owners pass away.
Heirs Burdened With Taxes
"What has happened," explained attorney Rick Arnold of the Day Ketterer law firm, "is that 50 years ago, many couples purchased lakeside parcels and added cottages for a mere $5,000-$15,000 because the land was in the middle of nowhere."
"Now that the properties are more accessible and sought after, the real estate market has inflated their value, sometimes as much as 3,500%, which can translate into six-digit tax liabilities." he added. Often times when parents pass away, the only way for the next generation to pay probate administration and estate taxes, is to sell the cottage much to everyone's dismay.
The Family Cottage LLC
To help minimize the financial impact and potential conflicts associated with transferring family cottages to the next generation, Arnold and his partner John Prelac suggest that current owners evaluate different estate planning options, including forming a Family Cottage LLC. "This advanced form of estate planning will help families take care of future squabbles relating to usage, maintenance and buyouts before they become family feuds," states Prelac. "The LLC lays the ground work to handle these situations, and can help significantly reduce tax liabilities." It helps preserve the lakeside cottage for its original use family fun!
For More Information
If you would like to evaluate your current situation and discuss the complex tax and the legal considerations associated with establishing a Family Cottage LLC, contact the experienced Cottage Law attorneys at Day Ketterer who understand the nuances of this unique estate planning option, or check out the new Cottage Law Flyer.
- Rick Arnold at rwarnold@day-ketterer.com or 330.458.2017.
- John Prelac at jmprelac@day-ketterer.com or 330.458.2016.