Cabin season is here! It is the time of year when roads fill up on Fridays and Sundays as people trek to and from cabin getaways. Some of my fondest memories growing up were spending time at my aunt and uncle’s cabin navigating the boat with my grandpa and cousin for the hot fishing spots. The fish tales made their way to the eulogy I gave for my grandpa a few years ago. When my kids were younger, my wife and I would rent a cabin every year over the Fourth of July. After a brief hiatus to explore other parts of the country, this year we resumed renting a cabin to create the same types of memories for our kids that we had growing up.
Whether you call it a cabin, cottage, or second home, it’s not just an asset, but rather a box full of memories. This can add complexity when deciding how to transfer ownership of the cabin due to death, disability, or simply having the memory box at capacity.
The first step in considering the transfer of cabin ownership is to have a family conversation to determine whether anyone is interested in keeping the cabin within the family. If a child is interested, is that child willing to own the property instead of some other inheritance? Is the interested child in a position to pay ongoing expenses and provide maintenance for the cabin? If multiple children are interested, do the siblings get along and could they be co-owners of the cabin? The sooner these questions are addressed, the more time there will be to put a plan into place.
Once you decide upon future ownership of the cabin, there are numerous strategies that can be implemented depending on your desires:
- Outright Gift or Sale: Transfer the title of the cabin through a gift or sale.
- Limited Liability Company: Transfer partial ownership over time and create a maintenance fund for the recipient of the cabin.
- Revocable Trust or Transfer on Death (TOD) Deed: Facilitate the transfer upon death to avoid probate for the cabin.
- Irrevocable Trust: Transfer the cabin outside of your estate, which may force you to “pay rent” for usage of the cabin in exchange for potentially saving on estate taxes.
All of these scenarios could have various tax implications for you. If you are contemplating transferring ownership of a cabin, it is important to also integrate it with your overall estate plan. With potential changes for estate taxes and capital gains taxes on the horizon, a cabin may be a good asset to shift out of your estate for future generations to continue creating lasting memories.
Please contact your CCM advisor should you have additional questions about cabin ownership and your overall wealth transfer strategy.
INTERESTED IN READING MORE ON THIS TOPIC? Look for the sixth edition of Saving the Family Cottage by Stuart J. Hollander, Attorney, Rose Hollander, and Ann O’Connell, Attorney, at your local library or bookstore.
NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.