Cottage Trust – Is this the answer for your family? Part 3
We have examined a number of issues concerning the financing and use of the property. It is now time to address the legal L.L.C. issues that will be put into the Operating Agreement.
If the ownership interests are distributed equally among the grantor’s children, what happens when those children pass away? Can the membership interests only pass to blood relatives – children? Can a person leave the interest to his or her spouse?
If one of the children no longer wants to be part of the L.L.C., what is the mechanism to handle that? Are the other children forced to purchase his/her shares? Could the shares be sold to individuals other than family?
If a child dies, are his/her shares passed on to his/her children? Can the spouse have any interest in the shares?
If there are mandatory buy-out provisions, how would these be funded?
Should provision be made for ownership by grandchildren of the grantor? Is that too far in the future to worry about?
At first, it sounds like such a romantic idea for the family cottage to be passed on for many years to many generations; however, there are practical difficulties. It may be difficult enough for adult siblings to get along and cooperate with a family Cottage. It will be far more difficult with the next generation. Also, there will be more of them. If each child has two children, that is twice as many individuals to accommodate. There may not be enough weeks in a summer to go around.
There is often the situation where one of the grantor’s children does not have any children. If the shares are to be passed on only to grandchildren (blood relatives), it means that those without children lose a piece of their inheritance as they cannot pass it on.
There will be disagreements – that’s a guarantee. Each individual will see the cottage as something different.
Some will see it as a place where they can kick back and relax – do some fishing and swimming – no concerns. Others will treasure it as a holder of their memories – a place to be preserved and cared for.
How should these disagreements be handled? What will the process be?
All good things come to an end. At some point in the future, the family members will no longer want to own the cottage. There must be a practical and fair manner to come to that decision.
When can the property be sold? Will it require a unanimous agreement? Or a majority or super-majority agreement?