Best Way to Keep the Cabin in the Family
February 1, 2007
There are many choices in transferring your cabin to the next generation.
Photo by Doreen Salcher, dreamstime.com
• Do nothing, and let your heirs sort it out;
• Make provisions in your will for eventual transfer of ownership, but be aware that probate may be inevitable;
• Transfer outright ownership during life as a gift;
• Transfer the cabin to an irrevocable trust;
• Create a family holding company, perhaps in the form of a Limited Liability Company.
Which choice is for you? The landscape of estate planning, wills and trusts is a confusing one, so the best thing you can do is hire an attorney familiar with real estate and second homes.
Before you meet with an attorney, familiarize yourself with some of the common terminology. A few important terms to know include:
Joint Tenancy – An ownership interest in property shared with one or more persons. This form of ownership entails a “right of survivorship,” so in the event of the death of one joint tenant, the other joint tenant(s) acquires the deceased joint tenant’s interest.
Tenancy in Common – A form of joint ownership without right of survivorship, meaning that on the death of a co-tenant, the decedent’s interest passes according to the decedent’s will or other instructions.
Irrevocable Trust – Created during life or at death, it contains a set of written instructions to a trustee on how to manage property for the benefit of a grantor’s beneficiaries and how to eventually, if ever, transfer ownership of the property. A Revocable Trust, also known as a Will Substitute, can be revised by the
grantor until the grantor’s death.
Qualified Personal Residence Trust (QPRT or Q-PERT) – Essentially, this is an irrevocable trust that sets aside a period of time (usually 10 or 15 years) during which the ownership of the property gradually passes to the ultimate heirs. Since the trust is irrevocable, it cannot be cancelled once chosen.
Trustee – An individual or corporation named in a trust agreement to hold legal title to property and manage it for the benefit and enjoyment of the trust beneficiaries.
Life Estate – The retained right to occupy and use property for life.
Limited Liability Company (LLC) – An entity created under state law that can combine the characteristics of a corporation and partnership. Generally considered the most flexible legal entity for purposes of management.
Probate – The court-supervised process for the distribution of a decedent’s property either under the decedent’s property either under the decedent’s will, or, in the absence of a will, the laws of interstate succession.