As Michigan estate planning attorneys, we often speak with families who want to make sure their vacation home stays in the family for generations to come. Whether it’s a cottage on Lake Michigan, a cabin in Northern Michigan, or a home up north that’s been in the family for decades, these properties hold sentimental and financial value. But if a clear plan isn’t in place, these cherished properties can quickly become the source of legal confusion, family disputes, or even forced sales. That’s why proper planning is critical.
In Michigan, we have several legal tools available to help families preserve ownership, manage responsibility, and avoid problems with property taxes and probate. The good news is that with the right structure in place, we can help protect your family’s interest in the vacation property and ensure it passes smoothly to the next generation. Whether your goal is to keep the property out of probate, maintain fair use among siblings, or avoid a property tax uncapping event under Michigan’s property tax laws, we can help craft a strategy that fits your goals.
Why Planning Matters For Your Michigan Vacation Property
Vacation homes are often owned jointly by spouses or passed to multiple children. When there’s no plan in place, problems can arise. Children may disagree about how the property should be maintained, how expenses are paid, or whether the home should be rented or sold. These disagreements can strain family relationships and even result in lawsuits.
In Michigan, if a property is passed through a simple will or intestate (without a will), it will go through probate court. This process can delay ownership, increase legal fees, and cause uncertainty for the next generation. Without a clearly defined plan, even a well-intentioned family member may decide to sell their share, potentially forcing a sale of the entire property through a partition action.
Legal Tools To Keep The Vacation Home In The Family
We often recommend the following legal structures to keep the family cottage or vacation home protected and properly managed:
1. Create A Cottage Trust Or Family Trust
A trust can be used to hold legal title to the vacation home. Under Michigan law, a trust avoids probate, allows you to name a trustee to manage the property, and includes clear rules for use, maintenance, and succession. This is especially helpful if multiple children or grandchildren will inherit the property. A properly drafted trust also helps to avoid disagreements and makes sure that the home stays in the family.
2. Establish A Limited Liability Company (LLC)
A Michigan LLC provides more flexibility when it comes to management and transfer of ownership. With an LLC, the property is owned by the company, and each family member owns membership interests. The operating agreement controls how decisions are made, how costs are shared, and how interests are transferred. An LLC can also help protect family members from liability and offer tax advantages.
3. Avoid Uncapping Of Property Taxes
Under Michigan’s General Property Tax Act (MCL 211.27a), when a property is transferred, its taxable value may “uncap,” meaning it’s reassessed to current market value, often resulting in significantly higher property taxes. However, MCL 211.27a(7)(s) allows for certain transfers between family members to occur without uncapping, particularly when the property is placed in a trust or transferred to certain relatives. Careful planning is essential to take advantage of these exclusions.
4. Set Clear Rules For Use And Maintenance
No matter what legal structure you choose, it’s important to set clear expectations. Who pays for taxes and repairs? How is the calendar for use determined? What happens if someone wants out? These rules can be written into the trust document or the LLC operating agreement to avoid misunderstandings down the road.
Frequently Asked Questions About Keeping A Vacation Home In The Family
What Is The Difference Between A Cottage Trust And An LLC?
A cottage trust holds the title to the property and names beneficiaries who may have the right to use the home. The trustee manages the property based on the terms of the trust. An LLC, on the other hand, allows for ownership through membership interests and offers more flexibility in management and ownership transfers. Trusts are often used when avoiding probate is a top priority, while LLCs are preferred for long-term management with multiple family members.
Can A Vacation Home Be Transferred Without Going Through Probate?
Yes. If the property is held in a properly funded revocable or irrevocable trust, or titled in the name of an LLC, it can pass outside of probate. This helps avoid delays, public court proceedings, and additional legal costs. We help our clients structure ownership to ensure the property passes smoothly to the next generation.
Will Property Taxes Increase If I Transfer The Vacation Home To My Children?
Not necessarily. Under MCL 211.27a, transfers between certain family members, such as parents to children, may qualify for an exemption from property tax uncapping. The rules are very specific, so we review each case closely to ensure the transfer qualifies for the exemption and is reported properly.
What Happens If One Child Wants To Sell Their Share Of The Vacation Home?
Without a clear agreement in place, that child could force a partition sale, which might result in the entire property being sold. This is why we create governing documents, either in a trust or LLC, that include provisions about how interests can be sold, including rights of first refusal and buyout terms.
How Can We Make Sure Everyone Shares The Costs Fairly?
Whether using a trust or LLC, we draft documents that outline how expenses, such as property taxes, insurance, utilities, and repairs, are shared among family members. These terms are legally binding and help prevent disputes about financial responsibilities.
Can We Rent Out The Vacation Home To Help With Costs?
Yes, but the decision to rent should be addressed in the governing documents. Some families are comfortable renting to third parties, while others prefer to keep the home private. We help you include language that reflects your preferences and ensures clear procedures are in place.
Call Boroja, Bernier & Associates To Preserve Your Family Vacation Property
At Boroja, Bernier & Associates, we understand how important your family’s vacation home is. Whether it’s a cabin, cottage, or lakefront home, we can help you create a legally sound plan to keep it in your family for generations. Our attorneys serve clients in Troy and Shelby Township, and throughout Oakland County and Macomb County, with practical estate planning solutions tailored to Michigan law.
Contact the Michigan estate plan attorneys at Boroja, Bernier & Associates, to receive a free consultation when you call 586-991-7611. Let’s work together to protect what matters most to your family.
