| Cottage Law is specific to the unique requirements | | | | change the relationship of ownership from "direct |
| of family cottages, vacation properties, hunting | | | | owners" to "indirect owners" by creating a cottage |
| lodges, or other types of shared property. Cottage | | | | Limited Liability Company (LLC). The LLC is governed |
| Law is a fairly new practice area of law. It gained | | | | by flexible Entity Laws which have provisions for |
| momentum in the early 1990s when states created | | | | multiple owners and generations of ownership by the |
| Public Acts which provide the legal framework | | | | family, versus Real Estate Laws which favor the |
| essential for changing the ownership relationship of | | | | rights of the individual real estate owner. |
| cottage property owners. Michigan lawmakers | | | | Indirect ownership of your cottage through an LLC |
| created the "Michigan Limited Liability Company Act" | | | | allows you to use laws intended for business entities. |
| (LLC) in 1993, and most states have since adopted | | | | You are able to customize an arrangement specifically |
| similar limited liability company statutes. Cottage Law | | | | for your family's wishes. You are in control. You get |
| is a practice area of law firms which focuses on | | | | to decide how the family cottage will be operated, |
| family cottage sharing and cottage succession | | | | financed, and most importantly, you are in control of |
| planning. | | | | how the cottage will pass from one generation to |
| Cottage Succession Planning involves developing a | | | | another. |
| succession plan to pass the family cottage to children | | | | When you create a cottage Limited Liability Company |
| and future generations for their shared use and | | | | you transfer the cottage property title to your |
| enjoyment. A succession plan is designed to protect | | | | cottage Limited Liability Company. The LLC becomes |
| the owner, family members and the cottage | | | | the new owner of the cottage real estate, |
| property from threats of a forced cottage partition | | | | furnishings, boats, vehicles and other equipment. You, |
| lawsuit and to establish equitable rules for the future | | | | and future generations of your family, become |
| operation, shared use, financing and management of | | | | "indirect owners" of the cottage. Instead of a "direct |
| the family cottage. | | | | ownership" interest in cottage real estate property, |
| 7 key cottage-related concerns addressed by a | | | | you own "membership units" in the cottage LLC and |
| cottage succession plan: | | | | are then able to transfer "membership interests" in |
| - The possibility that ownership of a part of the | | | | the newly formed cottage Limited Liability Company |
| cottage will pass into the hands of a non-family | | | | to your heirs. |
| member as a consequence of death or a divorce. | | | | Work with an expert cottage law attorney to review |
| - What to do if a family member is not able or not | | | | your family cottage property as a whole. An |
| willing to meet any or all financial commitments to the | | | | attorney specializing in cottage law is in a position to |
| cottage. | | | | advise you on short- and long-term strategies and |
| - The financial impact on the cottage if a family | | | | legal structures to avoid "uncapping" your property, |
| owner files bankruptcy, or a portion of the cottage's | | | | property tax appeals and related tax matters. |
| interest is levied by a creditor of a family member. | | | | A cottage law attorney works with the family to |
| - How to solve internal conflicts between family | | | | develop a plan for the management of the cottage, |
| members about how the cottage is operated, | | | | to address scheduling the use of the cottage, how |
| maintained and improved. | | | | to equitably resolve power struggles between siblings |
| - A family member wants to "cash out" their interest | | | | for use during peak season months, how to finance |
| of the family cottage. | | | | and possibly endow the cottage, and develop a |
| - Disharmony and even possible litigation between | | | | financial plan for a "graceful exit" to accommodate a |
| siblings when parents are no longer around to | | | | sibling who does not want to share in the use, care, |
| mediate a peaceful resolution. | | | | and expense of the family cottage. |
| - What happens when a child, or children cannot | | | | At the core of the Cottage Succession Plan and LLC |
| afford to keep the cottage. | | | | is the Cottage Operating Agreement where rules are |
| In the past most parents relied on their estate plan | | | | established for the management, shared use and |
| to leave the family cottage equally to their children. | | | | future of the cottage. Care must be taken to |
| While this is one way to pass on the family cottage | | | | accommodate the wishes of each owner because |
| property and transfer ownership to others, it | | | | each owner has to be willing to sign the operating |
| presents financial, legal and emotional risks to both | | | | agreement once it is drafted. |
| heirs and the family cottage. An estate plan cannot | | | | You will need to choose between two types of LLCs |
| prevent a partition lawsuit, establish rules for the | | | | based upon when you plan to implement the LLC. |
| property's future, nor enforce your dreams of | | | | One is the "Immediate Cottage LLC" which becomes |
| keeping the cottage in the family. In Michigan, any | | | | effective when cottage owners finalize their |
| time you transfer the title to a property you risk | | | | operating agreement, file Articles of Organization with |
| "uncapping" the assessed value of the property and | | | | their state, and sign a deed. The other is a "Springing |
| chances are you will experience a dramatic increase in | | | | Cottage LLC" which allows the cottage owner to |
| your cottage property taxes. | | | | maintain complete control during their lifetime and |
| There are many reasons why it is difficult to share | | | | takes effect only when the cottage owner dies. The |
| and pass on family cottages - but it doesn't need to | | | | process of drafting the Cottage Operating |
| be difficult for you. The correct information and a | | | | Agreement is different for each type of LLC, but the |
| "unique to your family" cottage succession plan can | | | | goals of the agreement are the same. Your cottage |
| eliminate the risk and turmoil most families experience. | | | | law lawyer will advise you on the procedures for |
| Now is the time to begin viewing the ownership of | | | | both types of LLCs. |
| your family cottage from a different perspective. | | | | The Cottage Operating Agreement determines |
| How You Own Real Estate | | | | everything about the cottage including, but not limited |
| There are two ways to hold title to real estate: | | | | to: |
| -directly, or | | | | - Contributions to Expenses |
| -indirectly | | | | - Who Can Be An Owner |
| Direct Ownership | | | | - Renting |
| Real Estate Law governs the rights and duties of | | | | - Maintenance |
| "direct owners." The granting of these rights and | | | | - Scheduled Use |
| how real estate laws impose duties on direct owners | | | | - Annual budget |
| often surprise cottage owners. It's real estate law | | | | - Capital improvements |
| surprises which put the family cottage at risk. Real | | | | - Operating agreement amendments |
| estate laws of direct ownership do not promote | | | | - Amendments to the Articles of Organization of the |
| keeping the cottage in the family for multiple | | | | Company |
| generations, and the threat of partition and turmoil | | | | - Merging the company |
| among co-owners always exists. | | | | - Dissolving the company |
| Indirect Ownership | | | | - Establishing a cottage use fee for members |
| Entity Law, which are Laws of Trusts, Partnerships, | | | | - Select or replace company managers |
| Corporations, and Limited Liability Companies, govern | | | | - Mortgaging the cottage |
| the rights and duties of "indirect owners." Entity Law | | | | - Renting the cottage |
| is extremely flexible and accommodates the complex | | | | - Changing the company to a different legal form |
| realities of commerce. | | | | - Endowment contribution |
| One of the first things you need to learn is how you | | | | - Amend the operating agreement |
| hold title to your cottage property. Check the first | | | | - Approve construction |
| paragraph of the deed. If it reads "Tenants in | | | | - Approve remodeling which alters the character of |
| Common" you and other co-owners are "direct | | | | the cottage |
| owners" and your cottage is always at risk. Any | | | | - Increasing members portion of property insurance, |
| co-owner could force the sale of the family cottage | | | | property taxes, and standard maintenance expenses |
| using their right to file a "Right to Partition" lawsuit. | | | | - Selling the company |
| Typically, family cottages are governed by | | | | - Selling the cottage |
| 600-year-old real estate laws. The American legal | | | | Circumstances need to be evaluated for each family |
| system is based upon English common law and the | | | | and cottage property. The advantage you gain using |
| principle supporting the "right to partition" is that no | | | | an expert cottage law attorney is knowing you |
| person can be required to own property. Think about | | | | created a flexible legal entity to fulfill your hopes and |
| that for a minute. If you plan to pass on the family | | | | dreams of protecting, preserving and saving the |
| cottage to your children equally as "Tenants in | | | | family cottage for use by all future generations. |
| Common" and one of your children would rather have | | | | A well designed cottage succession plan preserves |
| the "cash value" of their inheritance and instead of a | | | | the "experience" of the family cottage. All the |
| share of the family cottage, they can choose to end | | | | memories that experience produces are worth more |
| their relationship with their co-owners of the cottage. | | | | than money and may provide what you hoped for - |
| If siblings can't afford to "buy out" a sibling and there | | | | a common and loving bond and closer relationship |
| is no way the cottage property can be divided | | | | among grandchildren and great-grandchildren. |
| equally, a court could order the sale of the property, | | | | Begin the process of creating your cottage plan. |
| and divide proceeds equally among the co-owners. | | | | Having a simple plan in place, which you can easily |
| Your dream of happy family times at the cottage for | | | | change and update, is better than the consequence |
| future generations is lost. | | | | of not having a protective cottage succession plan |
| To protect the family cottage for future generations | | | | for your heirs. |