Is It Time To Start Thinking About Succession Planning For Your Cottage?

Is It Time To Start Thinking About Succession Planning For Your Cottage?

Summer is the season for cottages and enjoying lakes. Cottages are places where family and friends enjoy time together and create memories. For many families, cottages are an important part of their relationships and as their children get older, they eventually come back with their own kids. It becomes an experience that can be enjoyed by multiple generations. It’s not surprising then that many families would like these experiences to continue for future generations.

Successfully doing this requires a combination of family and legal planning. Let me suggest how to start the cottage planning process:

  1. Make a realistic assessment of whether your cottage can be kept in the family. It’s not easy to transition a cottage to the next generation. Even when family members have good relationships, there will be challenges. For this reason, it’s important to assess whether it’s feasible and best for your family to keep the cottage after you pass. Ask yourself questions like: does your family enjoy getting together at the cottage; will each child see the benefit of having it in the family; will they all be able to use it; can your children work through difficult issues with the cottage? Then, talk through these and other questions with your children to see how they respond.
  2. Develop a legal structure for the ownership and management of the cottage. There are three main legal structures for owning a cottage: a trust, LLC, and joint ownership. There are advantages and disadvantages to each structure. A trust tends to be the most in favor these days due to the property tax benefits. Michigan law allows a cottage to be passed to the beneficiaries of trust without uncapping the property taxes. This is very important because it makes the cottage more financially affordable for the family. On the other hand, LLCs are very helpful for liability protection. They’re also an effective way to gift ownership over time to the next generation and minimize estate taxes. Finally, joint ownership is very simple to set up and if done right, will avoid an increase in property taxes. However, it doesn’t have any management structure and liability protection. It’s also more difficult for the ownership to stay in the family and avoid probate.
  3. Develop a financial plan for your cottage. A cottage has operating expenses and the next generation may not have the resources to pay for it. To avoid family disputes over how to pay for it, money should be set aside. This is most often done using a trust. The trust would hold back a certain dollar amount that will be deposited into a bank account at your passing. A child is appointed trustee and will use those funds to take care of the cottage expenses for the family.

Transitioning a cottage to the next generation is very achievable, but it will take planning. Consider starting this process now. If you have any questions or would like to begin the cottage planning process, feel free to contact me at


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