Family Cabin, Family Heirloom?

By Tenlee Lund

Let’s say you want to start the new year out right by getting your financial affairs in order. While doing this tedious planning, some of your decisions regarding heirlooms and assets will be fairly easy—until you get to the family cabin.

When my husband’s parents were facing this decision, it was unclear if any of their three sons would want to keep their small cabin, which had been in the family for decades. One son already lived on a lake, another was more involved with horses than fishing, and the third lived twelve hundred miles away. My in-laws were faced with a typical dilemma for cabin owners—should they try to preserve “the cabin” for future generations or sell it and invest the appreciated profit?

As many of you know, cabins can take on a meaning much larger than just buildings on lakeshore. Over the years, as a family, you’ve shared good times, troubled times, campfires, boat rides, and summer sunsets. And as parents or grandparents, you may want to preserve those precious moments by handing down the family cabin to your children and their children and their children, envisioning an endless loop of scenes from On Golden Pond.

If that’s what you’re thinking, you may want to think again. Lakeshore values have ballooned, along with the costs of insurance, property tax, and maintenance. According to Diane Rook-Johnson of Financial Group of Central Minnesota in Baxter, “When you leave real estate to more than one beneficiary, assuming they will keep and use ‘the family cabin,’ it is sometimes the worst thing you can do to your children.”

By leaving a property to several beneficiaries, you could be assuming that your children will all use, enjoy, and pay for the place equally. But in real life, there are questions and circumstances you may not anticipate. What happens if one of your children makes more money than the others? Should that person pay more for taxes, insurance, and maintenance? What if one of your children moves across the country and can only visit once every few years, while the others live nearby and use the cabin frequently?

“Then there is the nightmare of, what if one dies?” asks Rook-Johnson. “Does his or her share go to the spouse or their three children? Now you have a cabin owned not only by your surviving children, but by three grandchildren, as well. Who pays the bills now? Or what if one of the beneficiaries is sued in a totally non-related event?”

In this scenario, could the entire property be encumbered?

“I know people can be attached to their cabins,” she says, “but I believe it is better to set up an estate so that, if one or more of the beneficiaries want to purchase the cabin, they are allowed first option to do so and the others get their share of the proceeds.

“I hear more problems from real estate ownership being left to children,” she concludes. “If you are setting up your estate, you need a good attorney to make certain that all possible contingencies are thought through and covered as to how they will be handled.”

So I asked attorney John Erickson of Erickson, Pearson & Aanes Law Offices in Brainerd, for advice. As someone whose firm deals with estate planning, among other areas of the law, here are his suggestions for what people should consider:

• There is no golden bullet, no silver thread, no perfect answer. For whatever option that in theory exists, there are advantages and disadvantages.
• Short of selling and dividing the money (and that is not always clean, either), each option is subject to human frailties: relationship issues are part of life.
• Consideration should be given to how important that cabin really is to each person with an interest. In addition to the foreseeable uses that I might make of it in the future, realistically, if someone else in the family wants to end the arrangements, then is it worth risking that relationship to keep the cabin for my interests? What really is important here?
• Will all of us get along tomorrow like we’re getting along today? Will money get in the way—taxes, insurance, improvements, divorce?
• Do we think alike now, as adults, compared to how we were as children? Can we agree on schedules for shared use? Can we work out disagreements? Do we need a contract for this?
• What about the next generation? If we get along fine as brother and sister, then what about your kids and my kids? Do they get along? What happens upon our passing? What happens if someone wants cash, not sunsets and walleyes?

Erickson continues, “Bear in mind that any form of joint ownership will entail conflict resolution.” Given modern society, ascending property values and taxes, and increasing degrees of personal and geographic separation, “it is highly likely that whatever choices are made today will be relatively impermanent.

“That having been said, ‘cabin’ owners should do their estate planning. In working with an estate planner, the better of the available choices will surface for each situation. To the extent that ‘single’ ownership can be planned, and it rarely can be, I prefer it.”

Looking back over my own experience, we were fortunate. Only one of the brothers, my husband, was interested in keeping the cabin “in the family,” so we entered into Erickson’s preferred, “single ownership” situation. But, as we look forward to the next generation, with personal finances, divorces, and distance dividing children, stepchildren, and grandchildren, the alternatives may not be so clear.

I guess it’s time for that New Year’s Resolution—to seek the advice of an experienced professional and get our financial affairs in order.