The idea of passing on a treasured family cabin to future generations can be very important for many families. Some families have been fortunate enough to have property that they have used for recreation, family gatherings and getaways for years in the Brainerd Lakes Area. The challenge for many families can be when and how to pass that property on to the next generation.
This topic often comes up during our estate planning meetings. Parents are at a point in life where they are ready to relinquish some control of the cabin and have the next generation that is established and ready to take over the costs of maintaining that cabin and property. The stability of the next generation is important. You don’t want to transfer the cabin to kids that have no means to cover the expenses or who cannot get along to be able to make decisions related to the use of the property. It is not uncommon to have us talk through the various options for transfer and it becomes clear to parents that a transfer to the kids is not the best way to move ahead.
For families that are comfortable moving ahead with a transfer, what are some options to consider? The complexity varies with the different options and each has its own pros/cons. Parents could simply choose to have a deed prepared to transfer title of the cabin to the kids. A deed is inexpensive to prepare. The deed is then recorded with the county and title transfers to the kids and they are now responsible for the property taxes, upkeep and use decisions. This type of transfer would likely trigger the need to file a gift tax return. You can still transfer up to $15,000/year/person without having to file a gift tax return. However, odds are you’ll be transferring property well over this annual limit. However, it is unlikely that a gift tax would actually be owed, but it would still trigger a filing requirement. Also due to this transfer the kids will take on the parent’s tax basis in the property with this gift. You can imagine property that has been in the family for years, that has been improved, can have significant appreciation. Finally, the kids as the new owners, have to work together to figure out how to use the property and how expenses will be covered.
Another option for transferring property to the kids is to set up a trust solely to hold title to the cabin. This cabin trust would also include the rules related to use and operation of the cabin. It can discuss how people move in and out of that cabin interest. If circumstances change and kid #2 no longer wants use the property, how do the remaining kids determine the value of kid #2’s interest and how do they cash them out. How are interest passed to future generations, etc.
There are multiple ways to transfer that treasured family cabin and it involves a discussion about what the main goals are, what parties will be involved, what family dynamics are like, size of your overall estate and many other considerations.
Please send me an email at firstname.lastname@example.org with any topic suggestions or requests you may have. Although we cannot give you legal advice through the column, we can provide some general information that may be helpful for you to know. Our purpose is to educate and we hope that you can take something new away from this column each time you read it.