As Wisconsin residents close up their family cottages for the winter, it may be a good time to consider a structure to conveniently allow your family to continue to enjoy the cottage for future generations.
In some cases, it may make sense to set up a limited liability company or trust to facilitate indirect ownership of the cottage and protect it from certain liabilities. This would allow a current owner to provide a structure for transfer of cottage ownership, use and management of the cottage and payment of expenses.
Both a limited liability company (“LLC”) and trust can provide the owner some liability protection, but there are some differences between the two structures. If an owner wants to leave some money or investments for future generations to utilize for cottage expenses, such funds could, in most instances, be protected within a trust. However, structuring cottage ownership in a trust may provide less flexibility for future generations than an LLC would because a trust becomes irrevocable (and thus harder to modify its terms) upon an owner’s passing. So, in the event of a dispute over, for example, maintenance and expenses, a trust can be more cumbersome than an LLC regarding settling or bypassing such disputes.
On the other hand, an LLC’s advantage is its flexibility. LLC’s are governed by operating agreements, which can be modified by current members of the LLC. Because an LLC is a flexible entity, it can be a particularly helpful vehicle when it comes to handling unforeseen circumstances, facilitating ownership transfers, particularly if a family member does not want to be involved with the cottage, and managing usage of the cottage.
Whichever route an owner may choose, there are certain fundamental considerations for inclusion into the operative language for trusts or LLC’s. Those include provisions regarding maintenance, cost sharing and budgeting, dispute resolution and creditor protection and tax implications with respect to the cottage.
If you should have questions or concerns regarding these issues, please contact Lin Law LLC at (920) 393-1190.