Autumn has arrived. Across New England, families lucky enough to have lake houses, beach houses, and camps are buttoning up those properties for the long winter.
A family cottage can hold a lifetime of memories. However, managing a family cottage can be difficult. It can even strain the very familial bonds that tie its owners together. One way to help ensure success might be to set up a Limited Liability Company – a so-called cottage LLC.
When people think of LLCs, they often think of businesses. However, in Maine, an LLC can have any lawful purpose, regardless of whether for profit.
So, why set up a cottage LLC? And isn’t that too complicated for a simple summer house? Well, in short, no… it doesn’t have to be very complicated, and there are a number of reasons why it might make sense. Here are a few:
- An LLC can protect its owners from liability.
- An LLC can also keep the property safe from the creditors of any single co-owner. For example, suppose a downtrodden cousin or nephew loses his share in a bankruptcy or divorce. A cottage LLC can help protect the other co-owners' interests.
- An LLC’s Operating Agreement can be written to spell out all of the rights – and obligations – of each co-owner. That means everyone knows when they can use the property, who is responsible for repairs, and how they will be held accountable.
- When the time comes for one owner to sell or transfer her shares, a cottage LLC allows for flexibility, and minimizes the risk of a forced sale.
Cottage LLCs help families manage the risks and challenges of co-ownership. Even for individuals who own property outright, setting up an LLC can make good sense if they ever plan to rent out the property, or are considering transfers to children or estate planning needs.
A number of factors might impact whether a cottage LLC makes sense for you. Among other things, you should carefully consider: mortgages or other liens on the property; tax and estate planning implications; and insurance limitations. If you think a cottage LLC might make sense for your family, be sure to consult a qualified attorney, and a tax advisor as well. They can help you decide whether to move forward, and lead you through each step of the process.