Passing Your Cabin to the Next Generation
So how can you make sure your cottage or your land is safely transitioned to your loved one?
With Memorial Day just around the corner, many people are getting ready for their time honored summer tradition of going up north. So how can you make sure your cottage or your land is safely transitioned to your loved one? Just call Hooper Law Office; attorney, Justin Randall joins us. Good morning, Justin.
Alright, let's talk a little bit about what actions we can take to keep our cottage in our family for multiple generations.
Justin Randall: The issue a lot of people end up running into is that they don't really set up any sort of structure to own that cottage going forward, or the hunting land as it may be. They tend to just pass it down to their kids, and then their kids pass down to their kids. And the issue becomes there ends up being so many different owners, and no real structure to deal with disputes or to pay expenses, that it ends up causing conflict in the family. So, it's really important to have some sort of structure. It’s usually some form of like an LLC, or an entity like that, that can set up those rules ahead of time to help guide your family.
What are some of the options to help us avoid that conflict?
Justin Randall: We commonly do use LLC’s, there's different types of business entities that people will use. But, it's really good with-- if you have-- say you own a cottage with your siblings now to get together with them and explain why you should set this up is you can set up these rules you can limit ownership to maybe it has to be a direct descendant, right? Maybe you're keeping spouses out of the ownership, or you're dealing with how to pay for property taxes and upkeep. And what happens if someone doesn't. So, by setting up an entity like that, and having a-- like an operating agreement for that entity drafted, you can set up those rules and dictate what needs to be done going forward.
Why can't I just sign my cottage or my cabin over to my kids?
Justin Randall: There's a couple of reasons that that's not a good idea. One for tax reasons, that's a bad idea. When you want you transfer property over to someone by gifting it, especially real estate, you essentially transfer your cost basis, which is how they would calculate any taxable gain upon a sale, you transfer that to the next generation just by gifting it to them. If you leave something like that to someone through your estate plan, you can actually get a step up in cost basis to fair market value so you can wipe out or at least lessen those capital gains taxes that the next generation might have to pay.