Joint Cabin Ownership
For many Minnesotans, owning a family cabin is a lifelong dream. However, the financial and maintenance obligations of cabin ownership can present a significant hurdle to achieving that dream. It makes sense, then, that joint cabin ownership amongst families or close friends is an idea considered by many. And while sharing responsibilities can make cabin ownership more practical and enjoyable, joint ownership can also create conflict amongst even the closest of families and friends. Because of the potential conflicts created by joint ownership, people often consider using a business entity—a limited liability company, partnership, or other form—to own a cabin.
One of the most significant benefits to business entity ownership is the ability to create and amend a set of governing documents, i.e. the cabin ownership rules. Governing documents allow owners to address the logistics of joint cabin ownership up front. Common topics that may be handled in governing documents include financial obligations of owners, restrictions on ownership changes, management provisions, and voting procedures for unanticipated issues. For example, cabin owners can expect to face decisions regarding repairs and improvements to the cabin. Governing documents can address who decides when and how those repairs are made, who pays for improvements, and what happens if owners cannot pay their share. Governing documents can also allocate routine expenses amongst owners—property taxes, insurance, mortgage payments, utilities, and more. Another common issue addressed in governing documents is how ownership changes can (and cannot) occur over time. For example, what happens if an owner wants to sell his or her interest? In order to prevent a sale to an unknown or undesirable third-party, governing documents may give other owners or the entity itself an opportunity to purchase the selling owner’s interest. And finally, governing documents can create rules around using the cabin and its related assets (e.g., boats, docks, or other equipment). Depending on the arrangement and the parties, rules could range from a few basic requirements regarding using the property to an extensive and detailed list of restrictions. Moreover, governing documents can be changed by the owners over time as circumstances change.
In addition to creating governing documents, owning a cabin through a business entity can provide advantages from an estate planning perspective, can limit individual liability, and can allow for unequal ownership if desired.
The decision to jointly own a cabin should not be taken lightly. An attorney can help evaluate the advantages and disadvantages of joint ownership, whether through a business entity or some other manner. At Wilkerson & Hegna, we emphasize creating entities and drafting governing documents from our client’s perspective—addressing key concerns in a comprehensive and organized manner, raising unanticipated issues, and avoiding overly complex arrangements or provisions.