Keeping the family camp in the family

Fundamental considerations to plan for the property’s future ownership

It’s that time of year when families are making plans to winterize their seasonal camp, cottage, beach house, lake house or vacation home. The boat needs to be removed from the water, the dock raised or stored, and the pipes need to be drained (except for those homes which have “winter water”). The process is repeated each year when the summer begins to fade into fall.

Each spring, the ritual is reversed when the camp is readied for summer opening. The camp is very much a cherished part of a family’s life, sometimes for many generations. But sadly, a family’s enjoyment could end because of lack of interest by children or grandchildren who move away, lack of funds to maintain it, or family disagreements about usage and responsibilities.

Too often, owners lose sight of the big picture — the orderly succession of the camp when the present owners are gone. Common reasons owners avoid a camp succession plan include the expense of putting a plan in place, indecision, family strife, concern about showing preferences among family members who have an interest and those who do not, future management and refusal to accept that the status quo will not continue indefinitely.

The lack of a solid, well-thought-out plan — for gifting, management, expenses and usage — may end up in costly litigation and deepen hard feelings among family members, especially if the camp represents a substantial part of the owner’s estate.

Here are some fundamental considerations for you to think about if you care enough about your camp to plan for its future ownership:

1. It is sometimes preferable to start a conversation with your children (assuming they are your “heirs”) about their interests in owning the camp, how the property will be managed, and how the costs will be met or shared. In other cases it’s better to work out the details of the plan with a professional prior to having the conversation with the kids.

2. Will you make gifts of your interests during lifetime or upon death? There are important tax reasons in choosing one gifting method or another.

3. Many camp owners never had a title search done prior to their ownership. Professional real estate title work will avoid unwanted surprises in the future.

4. Some children may be genuinely disinterested in owning the camp. Should they and their children be excluded? You might want to consider making gifts of other assets to excluded children through your overall estate plan.

5. Is it your wish to exclude a child’s spouse from owning a share of the camp upon the child’s death or divorce? Ultimately, this is your decision to make.

6. Do you have sufficient funds to set aside to carry the property costs for the foreseeable future when you are not around? Otherwise, an heir will be required to pay his/her funds for property taxes, maintenance, insurance and improvements.

7. A camp succession plan prevents legal partition of the property in the event an heir wants to cash out his/her share. A good plan should consider whether and how to cash out an heir by establishing the price and terms of a buyout.

8. Who will “manage” the property? Management is often handled by a majority of the heirs who decide questions of maintenance and improvements. A good plan will permit the majority to implement their decisions over the minority’s objections.

9. Strong-willed or wealthier heirs should not oppress meeker, poorer or more nostalgic heirs. Reasonable protections for each heir should be included.

10. Clear rules and standards, relying on democratic principles, should be incorporated into the plan. Unresolved disputes may be settled through the exercise of an heir’s right to compel the other heirs to buy him out, or by compelling the disputing party to submit the matter to a neutral arbitrator or binding arbitration.

11. A structured approach may address the affordability problem. If available, life insurance proceeds may be payable to the entity holding the camp. The proceeds can be invested, with income (and, if necessary, principal) from the investments being available to pay camp expenses.

12. A wealthier heir might have a right of first purchase, based upon an appraised value or a pre-determined price. If the heir does not exercise the right of first purchase, a designated person can be directed to sell the camp and distribute the proceeds among the heirs.

Besides the fall ritual of closing the camp, there is no time like the present to make plans for the camp’s survival.

Vera B. Buck is a shareholder in the Manchester office of Bernstein Shur who focuses her law practice on estate and succession planning.

Categories: Legal Advice