Keeping It In The Family: Protecting Your Family Cottage With an LLC

Some of your family’s best times were probably spent at your family cottage. It’s only natural, then, that you want to keep the cottage in the family for your children and grandchildren to enjoy. Simply leaving the cottage to your relatives, however, can lead to unexpected problems in the future.

Take an example: you decide to leave your Door County cottage to your three children. The default result means that each of your children becomes a tenant in common (TIC). As TICs, each child has the right to use the entire property at any time and is responsible for certain costs such as taxes, mortgage and insurance.

On the other hand, TICs don’t have to chip in for repair or improvement costs and, if one wants out, the property can be partitioned or sold. Additionally, creditors could get a hold of one child’s interest and force a partition or sale of the property—your other two children would get their share, but the cottage wouldn’t belong to the family anymore.

A better option is to create a family LLC, where the company owns the cottage and your family members own units of ownership in the company. Properly drawn up LLC documents can solve many of the problems tenants in common have. You can set rules for use and a method for paying expenses. You can also determine who will make important decisions and how. You can also restrict transfer of ownership interests to non-family members. Most importantly, because the company owns the cottage, creditors can’t force a sale or partition, protecting other family members from losing the cottage.

While it sounds odd to form a company to protect family property, a family LLC can help you avoid the pitfalls of multiple owners and ensure family days up at the cottage for years to come.

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