Save Your Maine Family Camp

If you are lucky enough to have a family camp in Maine, whether it be a cottage on a lake, by the ocean, on a mountain, or deep in the woods you know how beautiful it can be here.  Since even before Maine was known as ‘Vacationland’, many families have had summer cabins in Maine that have been enjoyed for generations.  As these camps are passed down to the next generation, it is not uncommon for issues of management and use of the property to arise.  There may be greater demand for the use of the camp that requires scheduled time slots that need to be agreed to by many family members well in advance.  Disagreements over costs, maintenance and improvements of the camp are not uncommon.File_000

Many times family members inherit the property from their parents who always took care of the responsibilities of the camp.  But often subsequent family members have different ideas as to how the property should be handled once they are the owners.  Ideally these issues and problems can be addressed informally, but it is not uncommon that a formal written plan needs to be prepared. In some instances without a clear plan in place for the property, disagreements over the property can lead to the loss of enjoyment of the property by all, and even in the worst case the forced sale of the entire property.  

There are several ways the owners of a camp can address potential (or existing) problems.  This work can be done before the property is conveyed (as part of a succession plan), or after the camp has been passed down.  Two common choices are to either place the property into Trust, or to establish an Limited Liability Company (LLC) to hold the property.  Deciding between these options will depend on the issues and problems you are looking to address with the conveyance and what best fits your current situation.  

Limited Liability Company

As the name implies, LLCs are typically created for business purposes, but it can also work very well for holding real estate that is to be owned by multiple people.  Conveying the camp property into an LLC allows for all the owners of the property, as shareholders in the LLC, to have a say in how it is managed.  From a legal standpoint, the real estate that makes up the camp property is owned by the LLC as a separate legal entity from the shareholders, and that provides liability protection to the shareholders.  

Under Maine law LLCs are required to create an Operating Agreement, that when used for the management of family camp can provide the formal structure to address nearly all of the potential problems that the camp owners may face.  As shareholders, family members have a say in the management of the property as provided for in the Operating Agreement.  And the Operating Agreement can be changed over time, with the approval of the shareholders, to address issues that may arise later on.  The responsibilities of the owners should be clearly stated in the Operating Agreement, and include matters of upkeep and payment of expenses.  If there are problems that arise a well thought out Operating Agreement will instruct the owners on how to address the problems in the manner previously agreed upon by the shareholders.  

With an LLC, ownership in the property can be easily modified by the exchange or sale of the shares.  If an owner is not longer interested, or cannot afford to be an owner of the camp a Operating Agreement should provide for how their shares can be conveyed.  Unlike when a camp is owned by several family members as tenants in common, which requires the preparation and recording of a deed to convey a part of the property (along with the payment of a transfer tax), the conveyance of shares in an LLC only requires a simple and private exchange agreement.  Another important consideration is if the camp is ever rented out, liability protection can be crucial.

48604Trust

Conveying the property into a Trust is often done as part of estate planning and can be done during the owner’s lifetime or pursuant to the terms of their will.  The basic structure of a trust has four parts: 1) the property being held; 2) the beneficiaries (those who can use the the property; 3) the trustee who is responsible for all of the decisions and management of the property, and a 4) a trust document (also know as the trust declaration), that is a written  document that legally creates the trust.  

Typically the trustee is one (or a group) of the family members who uses the property, but it may also be a third party such as a bank or law firm.  The trust document can also provide guidance as to the use, maintenance and responsibilities of the camp similar to the LLC Operating Agreement.  

In some instances it can be beneficial to have just one person be responsible for the all of the operations of the camp.  Often the first generation owner of the camp (the person who bought it), is willing and able to take on these responsibilities.  There can be tax advantages to placing the camp property into a Trust, as it is then a non-probate asset (meaning it is not part of your potential taxed estate).  However, unlike with an LLC, the trustee does not have liability protection in the event there is an accident at the property.   

In contrast to an LLC, having a property in a trust leave all of the decision making to one person or group, even while the beneficiaries may be contributing time and money into the property.  Another significant difference is the liability protection that is not available to trustees, that may leave them to claims by beneficiaries or third parties.

Summary

Being able to enjoy your own special piece of Maine comes with responsibilities.  If you have concerns of future management of the property, there are legal options that may be able address those concerns.  Setting up an LLC or a trust to hold the property are two potential solutions, each with their own benefits.    

If you are interested in finding out more about these option, the Teel Law Office can provide further guidance in deciding what is the best fit for your family camp.  We can also set up either an LLC and prepare the operating agreement, or create a trust with the trust document.  Along with these services, we can prepare all the necessary documents to convey the property into either an LLC or trust.