Should We Put Our Family Cabin in an LLC?

Should we put our family cabin into an LLC? My name is Andrew Ayers. I'm an attorney with offices in Edina, Minnesota, New York City. And today we're going to talk about a pretty common tactic that my clients use when they own a family cabin that they want to make sure they keep in the family. Now using an LLC is something that not everyone thinks about, but they probably should if they have a family cabin, it's summertime, people are getting ready to go on vacation, and it's a good time to think about what are the long term plans for our family property. What do we plan to do with this down the road, who's going to inherit it? And under what terms who's going to be responsible for paying for it? One of the ways we can make sure to keep that in your family is by creating an LLC. Now you should know that your family will then become business owners. So if you're one of those people who always said I would never be a business owner, I'd never own a company while you will if you're one of the owners of the LLC. But as part of setting up the LLC, you also need to make sure somebody is in charge of dealing with the paperwork and filing the filings with the state and taking care of other administrative aspects of the LLC. Now these shouldn't scare you off if you can't find somebody, you can often hire somebody who you'll spend a little money on to do these for you. But it's important to make sure that you have somebody managing the LLC. Now the LLC gives you lots of great advantages as far as keeping this property in your family and protecting it. One of the biggest advantages is that an LLC has a perpetual existence. So if somebody owns a property at the time of their death, we have to look at the deed and see how they owned it. If they owned it individually and there's nobody else on the deed, once they've died, we need to then send the property through the probate court and have it distributed. Now you don't have to deal with the probate court. If you put your family cabin into an LLC. Instead, when an owner dies, the LLC agreement will have provisions for what happens to their interest. Is it inherited by their children? Is it inherited by their siblings? Is it inherited by somebody else? But the advantage that LLC has we have an operating agreement that can specify what happens to those interests. As opposed to having to go to probate court, make some filings and have the court sort out where the property goes. It's also good because it's easy to transfer an LLC to somebody else. So let's say you've owned the family cabin for 50 years, and now the entire family is ready to move on. They don't really want it anymore as opposed to going through a full real estate closing. You could actually use the LLC as a vehicle to transfer the LLC to somebody else, or is presently discussed before mom and dad are now passing on the LLC to their children. It's a lot easier to do through an LLC than it is to file all new deeds with your local County Registrar. A big advantage of your LLC if you have a family cabin that you rent out, is that you're going to limit your liability. So let's say you have a renter for the month of July and they slip on the dock and break their leg. Well if they're going to sue somebody your personal assets, your family's personal assets, your siblings or cousins whoever owns the property with you. All those personal assets are not on the line. It's only the assets of the LLC. And many times the LLC is going to have one asset, which is just the property with that it owns your family cabin. There can be disadvantages to an LLC and they're mainly administrative because you need to realize there's going to be formalities you have to deal with and costs associated with these. So you have to register with your state that maybe taxes do if you're renting it out and bringing in a bunch of money. You need to make sure that there's insurance on the property and the insurance is not only paid up, but it also is transferred from your individual name to the LLC. At the same time if your family cabin has a mortgage on it, and you're going to create an LLC to own that cabin, we want to make sure that the mortgage company knows about the transfer the LLC and that all the correct paperwork has been filed. So that's the main disadvantage. The LLC for your family cabin is just going to be more administration but it's a good problem to have because you're getting all of this benefits and those advantages we talked about before. So while we're all heading off to vacation, if you're ready to consider putting your family cabin into an LLC, we can hop on a call and discuss what are the best options for you and your family. You can go to Andrew M ayers.com And there's a red legal Strategy Session button on the main page. It will take you to my calendar and we can set up a short 15 or 20 minute phone call. We can go through your family cabin, what it looks like now and whether or not it makes sense to transfer it into an LLC.