Northern Michigan summers are synonymous with family gatherings at the cottage. Whether it is pine paneled walls filled with decades of family photographs, a centennial farm or a newly purchased lake house; families flock to these idyllic places seeking to honor family members, reminisce and reconnect. There is something unique about “our happy place.” In the midst of organized family chaos, endless meal service and loads of laundry - time finally stands still, Mother Nature shines her brightest, and we remind ourselves what truly matters in life.
Our ancestors established homesteads to serve as a foundation for generations. Families lived and worked the land, generation after generation. In a world where family members are now spread out across continents, our cottages have become the modern day homestead. A place to bring everyone back together. However, without a family’s livelihood tied to the cottage and no family matriarch or patriarch to manage the familial chaos, how do we ensure the “homestead cottage” will survive? The reality is many don’t. Not for lack of trying or absence of sentimental attachment. Most simply do not survive because there was no plan. Life requires planning and our cottages are no different. Planning not only takes the emotion out of decision making, it creates a roadmap for a successful transition from one generation to the next. The process for creating that roadmap is as unique as our family units and the cottages where we congregate.
1. Initiate the Conversation
Life and financial circumstances differ between family members. While our wish is that everyone will share in ownership and enjoyment of the cottage, some family members may not share the same vision. Have a conversation with the next generation. Ask questions about their wishes, and tailor your cottage succession plan accordingly.
2. The Governing Instrument
The type of document used to manage a cottage depends on circumstances specific to each individual, their family and the property. While Michigan’s uncapping statute has been broadened substantially to eliminate the sudden rise of property taxes upon death, pitfalls remain. Current titling and proposed future
ownership structure must be analyzed as part of choosing the appropriate governing document. Depending on circumstances, this could be a Tenants In Common Agreement, formation of a Limited Liability Company or development of a Cottage Trust. Whatever the structure is, anticipate potential management and operational issues, clearly define the expectations of the next generation of owners and address how decisions will be made. Understand that relationships and family dynamics will change over time, so be forward thinking on issues that could potentially affect the cottage or the ownership structure in the future.
3. Expect the Unexpected
Proper planning assumes there will be disagreements and provides clear instructions for resolution. Encouraging or mandating participation from all family members who will share the cottage helps everyone feel vested in the decisions being made. It can also encourage generative discussions on topics before they become an issue. How will ownership and voting rights will be weighted? What happens to a family member’s share if they contribute additional funds or labor to a capital improvement on the cottage? Will decision making be centralized through appointment of a Manager or a Committee? What happens in the event of a deadlock? How will the cottage be used and by whom? How are expenses allocated? Should sale/transfer be restricted to lineal descendants? What happens if a family member is unable to contribute their portion to the expenses? Can a sale of a non-contributing family member’s share be forced? How and when will the decision be made to sell the cottage? We can never anticipate every future issue, but we can establish a structure that is flexible enough to adapt to change over time.
4. Provide Time and a Financial Cushion
Grief consumes us physically and emotionally, and the process of grieving takes time. After a death, life takes time to normalize and immediate decisions regarding the cottage should be minimized. Include provisions in your plan to allow for self-management of the cottage after death for a set period of time. Fund an account that will pay cottage expenses and provide specific instructions for management and use of the cottage during that same time period. This will give family members time to plan personally and financially to successfully transition ownership and management of the cottage.
5. Include an Exit Strategy
At some point, circumstances or events in life may force one family member to withdraw or sell their share. Whether it is disassociation/non- involvement, death, disability, divorce or bankruptcy, the exit strategy should be clearly laid out. Proper planning for exiting family members will eliminate the possibility of a third party inserting itself into the ownership structure. Will the other family members have a right of first refusal or an option to purchase – on what terms? Will value discounts or alternative buyout terms be provided to allow another family member more flexibility in buying out the exiting family member’s share? Can an ownership share be offered to a third party? If the other family members cannot/do not buyout the exiting family member’s share, should a sale of the cottage be forced? A clear exit strategy not only protects the cottage, it protects the interests of the remaining family members.
6. Leave a Legacy Letter
For a succession plan to be successful, future generations need to feel a connection to the cottage. They need to know its history and the story. Leaving a legacy letter is one way that story can continue to be told. It allows us to document and pass on our personal stories, beliefs, values, life’s lessons, etc. from one generation to the next. Incorporating a legacy letter into your succession plan ensures the origin, historical significance and nostalgia of the cottage is not lost with the passing of each generation. Cottages are a generational legacy. They are filled with memories, family traditions and stories of the sacrifice it took to create such a special place. It may be true that you can never go home again, but a cottage should be a place for generations to come home to.