Reprinted with permission from the Puget Sound Business Journal, April 2015 by Sherry Lueders
Family cabins have a way of straddling the line between a haven and a headache.
Sepia-toned memories of snowy winter holidays curled up by the fire and sunsets spent splashing in the lake are tempered by grim reminders of the summer the septic system failed.
The death of the cabin’s owner can be the catalyst for a dispute that drives family members apart — and often to their attorneys — rather than a sentimental gathering around the campfire. Many, if not most, disputes of this kind can be avoided with an appropriate estate plan that is targeted toward both the property and the family’s dynamics.
Here are ways to avoid the common mistates made when including the family vacation property in an estate plan.
Mistake No. 1: Failing to account for the location. Dirt (aka real property) is governed by the law of the jurisdiction where it is located. This means that your beach house on the Oregon Coast will not be distributed in a Washington probate — an ancillary probate may be necessary. And if your vacation property is in Mexico, or elsewhere outside the United States, your Washington will may not govern its disposition at all.
Solution: For vacation homes located in another country, you may need a will executed under the laws of the country in which the property is located in order to handle that specific asset. If you own real property in more than one jurisdiction, you should consult with an estate planning attorney about whether a trust would work well to streamline the administration of your estate.
Mistake No. 2: Leaving the cabin to multiple family members and assuming they will amiably sort out ownership amongst themselves. Giving the cabin to the kids outright in equal shares, as “Sopranos” actor James Gandolfini did with his Italian getaway in his will, may seem to be the simplest way to keep the cabin in the family — and keep the family in the cabin. However, simple plans have ways of unraveling with unexpected twists and knots. For example, all of the kids may not want the cabin. Where some remember fireflies and endless afternoons floating on the lake, others only remember swimmer’s itch and swarms of biting flies. Some family members simply won’t be able to afford their share of the cost of maintaining the cabin, or they’d rather spend their discretionary income and vacation time scuba diving in Aruba than making a 5-hour trek for the 263rd time to Mosquito Lake. On the flip side, all of the kids may want to use the cabin much or all of the time.
Solution: If you have a cherished family property that you anticipate multiple family members will continue to enjoy long after you are gone, you may want to meet with your family members (and an attorney) to discuss forming a business entity to hold the property (LLC, partnership, or corporation). By transferring the cabin’s ownership to a family-controlled business entity while you are still alive, you can help to transition responsibility for the property to other family members.
Mistake No. 3: Keeping quiet about your plans for the property. A 2013 Washington Court of Appeals (Division I) case illustrates the importance of communicating with your family about who will get the cabin. In Bale v. Allison, the cabin’s owner made a will which gave the cabin to one branch of his blended family, and led those family members to believe that the cabin would be theirs. Five years later, however, he had grown closer to another branch of the family, and he made a gift of the cabin to those two nephews via quit-claim deed. He died a few months later, and his family spent the next several years fighting in court over his intent for ownership of the cabin.
Solution: Have an honest conversation with your family about your plans for the cabin. Once everybody is on the same page, you can move on to a discussion of what type of ownership arrangement or estate planning tool will best fit your intentions for the cabin, thereby avoiding any surprises or conflict.
The bottom line? An appropriate estate plan for your family’s vacation property should account for, in varying degrees, both the specific property and its location, as well as frequently unpredictable family dynamics.