Many families have fond memories of wonderful times spent at a cabin in the woods or a comfortable beach house. These special places -- where "getting away" also meant getting to share extraordinary experiences with family members -- are also property.
How can those cabins and cozy cottages be passed down to heirs to keep family traditions intact? According to the experts at York Howell, a Salt Lake City, Utah- based firm with decades of experience in asset protection, tax strategies, and estate planning, it's not difficult to do -- but it does require some serious thought, as well as the proper legal documentation.
Careful consideration is required because there's more than one way to accomplish the goal. For instance, there are three main ways family elders can transfer property to their children. Each has its advantages and caveats.
The revocable trust is one great option. Upon the death of the person who created it, it becomes irrevocable (unalterable). However, during the life of the family member who establishes the trust, it can be amended or revoked if need be.
An irrevocable trust can also be employed to transfer recreational property to the next generation. If properly structured, the value and all future appreciation in value will be out of the settlor's estate and therefore not subject to federal estate tax upon the death of the person who established the trust.
Family limited liability companies (LLCs) also provide a flexible way to transfer vacation properties to heirs. Because ownership and management of an LLC can be separate, the senior generation can manage it until their deaths, allowing them to oversee the property.
The LLC agreement can also be structured to prevent the transfer of ownership outside of the family unless all members give unanimous consent. Of course, each methodology comes with different rules regarding tax treatment, ongoing maintenance of the property, expenses, and more.
Anyone who wishes to explore the options available for keeping the family recreational property safe for generations to come will need the assistance of a reputable firm with deep experience in this area of real estate law.
"There are many issues involved with each strategy," says David R. York, a partner with York Howell. "But with a proper legal structure and thoughtful planning, a family or joint-owned cabin or other property can provide years of positive family memories."