The call of the loon. Lazy mornings. Endless card games. Shared meals. Many Minnesotans have experiences like these that earn the family cabin a place in their heart. For me, there is nothing quite like watching the colors of the sunset reflect on the lake. It’s a place of peace and stillness, away from the hustle and bustle of our busy routines.
Cabins, from rustic retreats to vacation homes with all the amenities, are often seen as heirlooms or legacies. This means the owners also need to protect them as assets.
There are more than 100,000 seasonal cabins in the state, according to the Minnesota Department of Revenue. A 2016 survey found that the average age of a Minnesota cabin owner was 68, and only 11 percent of owners were considering selling in the next three years.
If you want your cabin to remain in the family, do you have a succession plan for how to make that happen? Here are some general considerations for passing down a family cabin. We would always encourage discussing this with your attorney and wealth manager to see what makes the most sense for your situation.
Start the conversation
Talk with your family members about your intentions — and theirs — for the cabin’s future. Discuss the cabin’s significance to them. Gauge their interest in owning and maintaining it. Knowing their visions for the future will help you make informed decisions about what to do with the cabin when you can no longer manage it.
Understand legal implications
Familiarize yourself with local regulations and zoning laws to understand what can and can’t be done on the property by your heirs or by someone else who might buy it. Seek legal advice to ensure you comply with any requirements and understand the implications of different methods of transferring ownership.
Consider your heirs’ financial ability
Owning a cabin comes with financial responsibilities, including maintenance, property taxes, and potential renovation costs. Consider whether your heirs have the means and willingness to take on these expenses. If they don’t, would you want to also leave them money that you earmark for these needs?
Account for taxes
Understand the potential tax implications of transferring ownership, such as gift tax, estate tax, or capital gains taxes. Consult an estate planning attorney or tax professional to minimize tax burdens and ensure a smooth ownership transfer.
Establish clear ownership structure
To avoid potential disputes among heirs, establish a clear ownership structure. Legal options for sharing cabin ownership include creating a cabin trust or a family LLC or directly transferring the deed to new owners. Depending on the considerations above, think about whether it is best to have shared ownership or to pass the cabin down to just one heir. If choosing just one heir, consider using life insurance in your estate planning to equalize inheritance values.
Plan for mortgage payments
Heirs who are not listed on your mortgage cannot automatically take over payments. Your heirs may be able to pay the remaining balance in full or refinance it into a new loan. But it may reduce risk if you own the cabin outright or if you have a life insurance policy that will pay off the balance.
Put property plans in writing
If ownership is shared, create documents that govern property use, maintenance responsibilities, cost-sharing and budgeting, and a plan for resolving conflicts. If it is not shared, make sure all involved understand why and what connection they will retain to the family cabin.
Preserving the legacy of a family cabin requires thoughtful estate planning and open communication among family members. My husband’s grandparents passed down their family cabin to their four children. Having an open line of communication and a shared understanding of the responsibilities were critical for successful shared ownership.
By having conversations early, understanding legal and financial implications, and considering the emotional aspects, you can ensure that your family retreat continues to nurture future generations.
Mallory is a Wealth Manager and Shareholder. She listens deeply and helps simplify complex financial situations to help clients move into an easier, clearer future. She aims to give financial advice that is compassionate, wise, and easy to understand.