Posts Tagged ‘wisconsin cabin attorney’

News Flash: Few People Actually Plan for Death or Incapacity

Posted by

 

Estate Planning Note:

AARP shared an article that reminds us how few of our neighbors have done Estate Planning.

See: http://www.aarp.org/…/info-2017/half-of-adults-do-not-have-…

The failure to plan for your death or incapacity can be painful for the family members left behind. This really rings true if you have underage kids or an asset like a family farm or other type of business that needs to be thoughtfully passed on to the next generation. The family assets can sometimes be tied up for years with fees and cost racking up.

With this in mind, this just might be the year to finally get this particular project done.

Have a great day.


We Just Inherited the Family Cabin. How Ugly Can it Get if Someone Wants Out?

Posted by

Siblings inheriting the family cabin tend to do things informally together. Siblings also can make promises to each other that they may not be able to stick to later. One such promise is, “If I ever want out of cabin ownership, I will leave the ownership without compensation.”  Sadly, a well-intended handshake plan to have others exit ownership without paying them is unrealistic. Invariably, this solemn promise is broken later on. Things can get very ugly at that point.

One reason things can get ugly is that Wisconsin real estate law empowers the lone wolf against the wishes of the pack. When two or more people own real estate under a deed they are said to have “concurrent ownership.”  A popular form of concurrent ownership is as “tenants in common.”  You would need to review your deed to determine if you are in that boat. If you are in a tenancy in common, you are in a position right now that could lead to an expensive mess. The reason is that any one of the tenants in common holds a legal right called the “right to partition.”  The right to partition allows one owner to sell the property out from under the others.

Here is an example of what might occur: Imagine that four siblings own a cabin up north together.  They plan to enjoy the property together. They proceed to do this for quite a few years. One sibling hits on hard times. He is in need of money and realizes that his share of the cabin is the last valuable asset he possesses. With reluctance, he asks the others to buy him out for the fair market of his share of the property. The other two owners say no because you agreed verbally that you would not do that.  This rejected sibling then seeks the advice of a real estate attorney who describes the right to partition to him. The sibling, feeling he is cornered, files suit to partition the real estate. The judge rules that the land cannot be physically divided into many parcels and orders the land sold to satisfy the one sibling’s right to partition the land. The remaining siblings are stunned when they have to sell the cabin against their will or buy the other sibling out at fair market value.

A good cabin plan will allow family members to gracefully exit on terms that permit the rest of the family to afford to keep the property.  One way to approach the issue of buy-outs is to consider placing the land into a limited liability company or “LLC” owned by all of the current owners listed on the deed. This approach is used regularly for family cabins in Wisconsin as a way to cover issues such as the buy-out of a family member who wants out or to plan for successive generations owning a family parcel. A prime reason for creating a land LLC is to prevent any co-owner from forcing a sale by filing a partition lawsuit like the example stated above.

A carefully drafted LLC can be used to establish a reasonable value for any buy-out and a reasonable value would not be zero. Still, discounts on the fair market value of the seller’s interest in the LLC are often used to help maintain the family ownership of the property on a buyout.

You should not hesitate to contact a qualified attorney for answers on this cabin law issue.


Can a Family Cabin Agreement Help My Family To Stay Out Of Court?

Posted by

We think so.

Imagine if a family member no longer wants to be a part-owner of the family cabin.  He wants out.  You do not want to pay him his asking price.  A falling out occurs. Other regretful actions transpire.

If your family doesn’t have some mechanism in place to deal with this impasse, a court proceeding may be the only option. However, there are sound reasons why you should try to avoid using litigation to settle your cabin related disputes.

Why should you avoid a court solution?

While a court process may take several months, the impasse will certainly be resolved.  However, family relationships chill dramatically after a lawsuit is filed, and without question, attorney fees and court costs are likely to be substantial.

In Wisconsin, there is another problem. An action of this nature will appear on the internet via the Wisconsin Circuit Court Access webpage. This means that the world will know about your family cabin fracas.

You might also be facing a “partition action” which is a legal atomic bomb. A partition of property is voluntarily if all the real estate owners agree to the division of property. However, if they don’t, after one party files a partition action, a judge can order a division or “partition” of the property. A partition action can be started unilaterally by any family member who owns an interest in the cabin.

There are two types of partition that a court may consider. A “partition in kind” severs the individual interest of the joint owners.  The owners end up each controlling an individual portion of the property. The second type of partition is a “partition by sale” and is more commonly used.  A partition by sale is accomplished by selling the entire property and dividing the proceeds among the owners.

How you might avoid a court solution?

Be proactive. Create a cabin trust or limited liability company.  A trust or limited liability company (LLC) can govern how the cabin is to be owned and used.

A primary purpose of a cabin trust or LLC agreement is to provide a procedure that kicks in when one owner wants to sell his interest. That procedure typically includes a determination of the fair market value for the seller’s interest. The agreement often includes a provision that requires that the seller sell his share at a discount.  Example: Brother’s 50% share is valued at $100,000. Sister owns the remaining 50% Share and is the buyer. Under the agreement Brother is selling it to Sister for $60,000 because of a 40% discount on sales out of the trust or LLC. The discount makes sense because it provides the financial incentive for the remaining owners to buy you out the seller and chills the seller’s temptation to jump out of the cabin for the cash.

We also see families agreeing to payments over time. Often the payments are spread out over several years so the sale wouldn’t strain the remaining owners’ finances forcing a sale of the cabin. Depending on the family involved, this can be payments made at interest over terms lasting 15 years or more.

The trust and the LLC can also help you avoid the partition action dilemma.  Under Wisconsin law, a trust or LLC is a legal entity.  This means, in effect, that the LLC is a legal person. A trust or LLC can sue and be sued, own property, enter into contracts, and do many of the things that an individual human being can do. Because a trust or LLC is a legal person, the property it owns is the property of the trust or LLC. Because the beneficiaries or members are not co-owners of the real estate, any partition action started would have to be dismissed.

As parties to the agreement, the buyer and seller both know the plan before the transaction occurs. An agreement can help family members keep their perspective, possibly avoiding a dispute before it begins.  If the parties do disagree with the terms of the agreement, an arbitration clause (requiring a private dispute resolution process and sometimes having the loser pay the fees) is used to keep things private and civil.

Not all agreements are created the same.

Avoiding costly litigation is just one of the benefits of using a cabin trust or LLC.  A proper agreement can, among other things, set a plan for scheduling use, sharing expenses, limits on decorating, rentals, and other uses for the cabin.

These agreements tend to follow a pattern but, frankly, no two are alike. Each family has its own set of values and objectives to consider. It takes time and expertise to develop them correctly.  A family should not hesitate to consult with a professional advisor that has experience in this area. A professional advisor can help the family develop an agreement that meets the family’s needs and helps maintain harmony so that the cabin can be enjoyed for many years.

Please take our Cabin Law survey:

How do you own your family cabin/ vacation home?

 


Cabin Scheduling: Sharing Is Not Always Easy

Posted by

Everyone loves the family cabin. Sometimes that love for the family cabin can make it hard to share when there are more than a couple owners involved. Understanding this dynamic, scheduling time at the beloved cabin can be a great challenge.

The owners of a cabin often find it works best to have a formal plan for use of the cabin. A formal plan is normally found in a scheduling system that is part of a limited liability company’s operating agreement.

The scheduling plans used for family cabins are as unique as the families involved. Many families like to rotate weeks. Some families set up a system where a family gets top pick one year, then moves to the bottom of the list. One such system reserves the cabin for five weeks each year for family gatherings and maintenance. The remaining weeks are assigned on a rotational basis and run from Friday afternoon to Friday afternoon. The order of the rotation changes each year.

It is not a bad idea to plan for the holidays and offer a wild card week. Some families like to meet annually at the cabin or local pub to develop rules for use as well, such as no smoking and other restrictions to keep the cabin nice. A plan for dogs and cats is also advisable.  Finally, whether to allow non-family individuals to use or rent the cabin should be discussed and addressed via a written agreement. Cleaning up after one’s self is also popular in these agreements.

Here is some sample scheduling language found in one family’s operating agreement:

Occupancy.  The Cabin shall be used for the personal, non-commercial, enjoyment of the Members, their respective families, and guests.  The Members will make and adjust rules and regulations regarding the use and enjoyment of the Cabin.  Such rules will cast equal burden and benefit on the Members without regard to their membership interest.  Under no circumstances will any Member use the Cabin so as to deprive the other Members of their respective and similar use.

Personal Use Allocation and Non-proportional Expenses.  At the Annual Meeting each year, the Members shall determine an allocation of personal use by weeks for the upcoming calendar year.  Each Member shall pick on a rotating basis which weeks he or she wishes to reserve for personal use.  Each week shall be deemed to run from Sunday at noon to the following Sunday at noon.  The year shall be divided initially into nine holiday weeks which include the following:  Easter, Memorial Day, 4th of July, Labor Day, Columbus Day, Thanksgiving, Christmas, New Year’s Day, and wild card week.  The balance of the year represents 43 weeks and shall be allocated after the initial eleven holiday weeks have been selected.  The wild card week can be any week of the year other than those holiday weeks listed.  The selection process shall operate in the following manner for the holiday weeks:

  • Each Member is entitled to three choices among the 9 holiday weeks.
  • The Members will rotate who gets the first choice each year, with each Member moving down one position and the Member in the third position moving to first position in the subsequent year.
  • For the balance of the 43 weeks, the procedure is to repeat the selection process that was done for the holidays.
  • At the annual meeting in December of each year, there will be adjustments made to the weekly stays, which normally run from Sunday at noon to the following Sunday at noon. These adjustments are to be made in light of the Thanksgiving holiday, in which it is anticipated that the week would flow from the Wednesday at noon preceding Thanksgiving Day to the following Wednesday, and that the following week would be a long week.  Also, holiday weeks for Christmas, New Year’s Day and the Fourth of July may be adjusted, depending on the day of the week in which the holiday falls.

The attorney-in-fact for the Company shall maintain the schedule of usage for the Cabin.

Rental of Cabin.  Notwithstanding the intent of the Members that the Cabin is primarily for their personal use, it is acknowledged and understood that the Company may permit, within the limitations of further specified rules and regulations to be promulgated, individuals other than the Members to use the Cabin.

Such third parties will sometimes be charged rent and sometimes will not be charged rent.  Relative to such third-party use of the Cabin, it is agreed that rental of the Cabin to third parties for purposes of obtaining rental income shall be ancillary rather than a primary goal of the Company.

The rental rate to be charged to third parties shall be set by the affirmative vote of a majority of the Members and shall initially be set at annual or special meetings of members at $1500 per week (or if rented on a daily basis, $200 per night for Monday through Thursday nights and $250 per night for Friday, Saturday, and Sunday nights).  These rates can be changed by the affirmative majority vote or advance written approval of the holders of a majority of the percentage interests in the company without necessitating a written amendment to this Agreement.

The Members agree that from time to time third parties, such as family or friends of the Members, or business associates or contacts of the Members may be granted permission by one or more of the Members to use the Cabin on a rent-free basis.  Such rent-free use is intended to allow the Members to use the Cabin in a courtesy fashion, and the Member extending such courtesy to the third party shall be considered to have personally used the Cabin during the period of time when the third party is occupying the Cabin rent-free.  Nevertheless, the Member permitting such use shall be responsible for arranging post-use cleaning service.

The Members also agree that Members will have to pay rent on “rentable weeks”. The “rentable weeks” in each calendar year will be set by the affirmative vote of a majority of the Members at the annual meetings of Members. The rental rate for Members shall initially be set at $1,000 per week. Any changes to the rental rate to be charged to Members and family and friends of Members shall be made by the affirmative vote of a majority of the Members at annual or special meetings of Members.

Third-party and Member rental income will be placed in the Company checking account to be used as all other monies in the account are used. Such third-party and Member rental income shall operate to reduce proportionately the funds and additional capital needed from the Members.  An accounting of such revenues shall be provided periodically by the attorney-in-fact.

Restrictions.  Smoking in the Cabin shall be absolutely prohibited.  Any guests shall be told emphatically not to smoke in the Cabin.  The purpose of this provision is to respect the health of the Members and guests of the Cabin. Domesticated animals are allowed in and around the Cabin so long as the animals are kept according to local laws and ordinances (including leash laws) and the party with the animals cleans up after them.

Any cleaning expenses required to alleviate the damage and odor caused by a violation shall be borne by the Member who is using the Family Cabin or permitting rent-free use of a third party at the time of the violation. Paying guests will charged for any cleaning expenses required to alleviate the damage and odor caused by a violation.

Expectation for Sharing of Chores.  Understanding that some Members may use the Cabin more than others, the Members who intend to use the Cabin on a routine basis will be responsible for routine chores, including, but not limited to, mowing, snow removal, and opening and closing up the Cabin at the end of the season.

Departure/Cleaning.  To maintain the value of the Cabin, each Member is responsible for leaving the Cabin clean, including kitchen, refrigerator, bathrooms, and all other areas.  An overnight supply of toilet paper and paper towels should be left for the next guests.

The language above is a sample.  Please keep in mind that every family is unique. This is just one family’s idea on how to schedule a cabin and to memorialize the schedule in writing. We are sharing it to help spark discussion between family members that co-own a vacation property.  It is for your information and is not intended as legal advice.