Planning for the Family Vacation Spot

Planning for the Family Vacation Spot

Provided By: Alan G. Orlowsky

Your family cabin, cottage, or vacation home may be one of your most significant financial assets. It is also likely to be the one with the most enduring memories and emotional ties. The property may have been in your family for decades with your children and grandchildren experiencing special family gatherings and having spent their summers there. Because of this, you probably have a strong desire to keep the property in your family, to protect it, to pass it down to your children, grandchildren, and maybe even your great grandchildren. This isn’t stocks and bonds; it’s your legacy!

Unfortunately, without proper planning, those inheriting the interests of long-time cabin owners may have too many divergent interests, financial and otherwise, to be workable. These new owners have often never discussed who gets to use the property and when, how to share expenses, handle the maintenance and upon what terms they can be bought out. Disputes can easily occur in these situations. Such family fights are often talked about among cabin (family retreat) owners. Most know at least one family story where after the death of the senior generation the property ended up having to be sold outside the family because the heirs could not work out their differences.

Let’s look at some of the common problems that affect inheritors of cabins and family recreational property.

  • The common right to use. All co-tenants have the same common rights to use the property. If July 4th rolls around and all owners enjoy getting together and space is no issue, great; but what if the relations among the owners have changed due to inheritances and the family gathering dynamics are different? If people do not get along or the cabin is simply too small to accommodate everyone, this common ownership becomes a huge and often unworkable issue. Enter the phrase “cabin hog” into the family lexicon.
  • Non-paying owners. This is where the trouble can really start, because even if a co-tenant does not pay their share, they still have the same common right to use the property as the others. The other owners essentially have to subsidize the non-paying owners because, if they don’t, it affects their own interests.
  • Legal and financial problems of other owners. If a co-owner is getting a divorce or files for bankruptcy, those problems can quickly become the problems of the other owners. They may be forced to transfer their interest to a successful judgment creditor including an ex-spouse.
  • Differing interests. This is the most fundamental of all the ownership problems. Some owners want to sell; some do not. Some need the money and some do not. Some can go to the cabin often while others are too far away to enjoy it. The list goes on and on. The more owners there are, and the more divergent their interests, the greater potential there is for problems and the greater the need to plan to avoid them.
  • Disproportionate physical work, property management, or improvements.It’s not easy to keep up lake homes, beach front properties, or cabins in the woods. Things need to be cleaned, fixed, bills paid, etc. Most owners cannot afford to hire out all this work so it often falls upon the owner who lives closest to the property, creating additional inequality.
  • Unintended and unwanted heirs. Assume Bob and Pat die and leave their cabin to their three children, John, Peter and Susan as equal owners. Assume that their son John dies a few years later and leaves his 1/3 interest to his spouse, Jane. Jane remarries and names her new husband Ted as a joint tenant with her on her 1/3 interest. She does not need to consult with Peter and Susan and is free to do this. Now, even though Peter and Susan never liked Jane and have never even met Ted, they now share the same common rights to use the property as they do. Ted shows up each weekend “to check on things”.

Even though Peter and Susan have told Ted they want their privacy, he continues to do this. Jane and Ted also don’t pay. Peter and Susan have to make up the shortfall and have to continue to deal with Ted stopping in all the time. Since Peter and Susan can’t force Ted and Jane to abide by a schedule for using the property or to pay expenses on time, they may have to bring an action to partition the real estate to end the undesired co-ownership with their former in-law and her new husband.

Luckily, there are ways to plan around most, if not all of these problems. Next issue, we will look at some of the potential solutions to the problems outlined in this article.

If you have questions, click here to have our office call to set up a time to discuss this with you.

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Updated as of July 2019
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