There are an estimated 124,000 recreational or seasonal homes in Minnesota. Add to that other private land used for recreation, such as hunting land, and that number is even higher. If you own a family cabin or other recreational property, it is probably important to you that the property stay in the family for future generations to enjoy.
There are two estate planning tools commonly used to achieve this important goal: a cabin trust and a cabin limited liability company (LLC). Cabin trusts and LLCs both facilitate indirect ownership of the cabin, which helps to protect the cabin and owners from certain liabilities. Both will also allow you to govern how ownership is transferred, how use of the cabin is managed, and how expenses are paid.
The biggest advantage that a trust has over an LLC is with regard to protecting the cabin from the liabilities of each owner (i.e., protection from creditors and judgments). Trusts are also sometimes chosen for owners who want to have more control over what future generations can do with the cabin. Additionally, if you want to leave some money or investments for future generations to use on cabin expenses, those funds will be better protected in a trust. However, a trust provides much less flexibility for future generations as compared with an LLC because a trust becomes irrevocable (and it becomes much, much harder to modify its terms) upon your passing.
An LLC’s major advantage, on the other hand, is its flexibility. An LLC is governed by an Operating Agreement, which can be modified by the current members or owners. Because an LLC is more flexible, it is generally better when it comes to handling unforeseen circumstances, facilitating and simplifying transfers of ownership (i.e., when a future family member doesn’t want to be involved with the cabin), and managing use of the cabin.
Which tool is right for you and your family cabin or recreational property will depend on your goals and circumstances. If you are ready to protect your family property and ensure that it remains a place for future generations to create lifelong memories, please contact your attorney at Melchert Hubert Sjodin.