FROM NASCAR CONDOMINIUMS TO PRIVATE MAUSOLEUMS: KEEPING THE VACATION HOME IN THE FAMILY - PART 1
FROM NASCAR CONDOMINIUMS TO PRIVATE MAUSOLEUMS: KEEPING THE VACATION HOME IN THE FAMILY - PART 2
By Wendy S. Goffe
VI. Ongoing Management of the Cabin.
Once the property has been transferred to the next generation using any of the methods described above, the family will need to put into place a mechanism to manage the property, resolve conflicts, and facilitate maintenance of the property. (See Louis H. Hamel, Jr., Keeping a Vacation Home in the Family for Younger Generations, 23 Estate Planning 123 (March/April 1996) for an analysis of the managerial issues and suggested planning techniques.) This agreement may be in the form of a joint venture agreement, LLC operating agreement, trust agreement, contract, tenancy in common agreement, or bylaws. For most families, an agreement where all members have consented to the terms tends to be more successful than an agreement imposed by the senior generation.
To assure the smooth operation of the vacation home for the extended family, the agreement needs to facilitate ongoing use and resolve issues that may arise.
The following is an outline of some of the issues that should be addressed in the agreement (adapted from Ken Huggins & Judith Huggins Balfe, How to Pass It On: The Ownership and Use of Summer Houses (1999), pp. 44-55 (used with permission from Ken Huggins and the estate of Judith Higgins Balfe)):
When the senior generation has formulated a transition plan (regarding ownership and/or management) but may not have completely implemented the plan, confirm that the agents under their durable powers of attorney will be permitted to do so. Some states require specific provisions in a power of attorney granting authority to make gifts of any type and others require specific provisions authorizing gifts of real property. While the senior generation may have designated particular members of the junior generation under a durable power of attorney, for purposes of maintaining family harmony, they may want to consider appointing multiple children to handle family cabin issues. Also, keep in mind that fiduciary duties may not be delegated under a power of attorney.
VII. Family Homeowners Associations.
If several residences have been built on the family property, or there is a possibility that several could be built, the family ought to consider the formation of a homeowners association to facilitate the ongoing management of the family property. A homeowners association is a formal legal entity created to maintain common areas and facilities and to enforce common covenants and restrictions.
A homeowners association is especially useful where the family intends to create or retain common facilities, such as a dock or swimming pool.
Generally, the procedure to create a homeowners association is to subdivide the property, and cause each lot to be subject to a set of common restrictions and covenants. The rules could:
A homeowners association can be formed as a partnership, LLC, or a not-for-profit association. Typically, each lot owner is required to be a member and pay dues and special assessments. If organized as a not-for-profit entity, it can qualify for an income tax exemption for revenue received from its members under I.R.C. §501(c)(6) or 528.
The rules and regulations of the homeowners association could be established by the senior generation before transferring the property to the junior generation. Or, the junior generation could jointly develop its own association rules.
VIII. Vacation Homes on Public Land.
Cabins on national forest land have existed since the late 1800's, when national forests were reserves and were administered by the General Land Office in the U.S. Department of the Interior. The first lots for private cabins were authorized by the Forest Management Act of June 4, 1897, also known as the "Organic Act," to encourage public recreation. In the early years, thousands of permits were issued on national forests near large cities, such as the Angeles, the Oregon (Mount Hood), and the Pike-San Isabel National Forests. The program continued to grow until permits numbered around 20,000 in the middle of the 20th century.
Often National Forest leases have been referred to as "99-year leases." However, there has never actually been a 99-year Forest Service lease. In the early 1900s, some portions of private land were leased for summer homes and subdivisions for 99 years, and some of those leases still exist. Because they were located adjacent to National Forest land in the foothills and mountains, National Forest Recreation residence tracts became associated with this type of lease.
The Forest Service issues recreation residence permits for a maximum of 20 years. Most of the permits involved high-value recreation land. In 1968, in recognition of other recreation needs, the Forest Service decided against establishing any additional new tracts. In 1976, this moratorium was expanded to include no development of new lots within existing tracts. Transfer of permits takes place now only by sale, gift, or inheritance.
A permit holder and prospective buyer or transferee must meet with the local Forest Service Special Use Administrator to discuss the transfer process. If a term permit is issued, the cabin owner will be permitted the remaining number of years on the current term. This allows for a common expiration date for all recreation residences located in the National Forest.
There is no guarantee that a new Term Special-Use Permit will be reissued at the end of the stated term. If a permit is not going to be renewed, the Forest Service will give 10 years notice, and the permit holder will be required to remove all improvements from the lot and restore it to the original conditions at his or her expense.
A residence under this permit may be used for recreation only and not as a primary residence. In addition, a cabin must be used at least 15 days per year by the permit holder to ensure that the privilege granted by the permit is exercised and the continued use of public land is justified. Owners may only rent their cabins for a maximum of 14 days per year, with written authorization from the special use administrator.
The special use permit does not provide exclusive use of National Forest lands to homeowners. The public is allowed free access for all lawful and proper purposes. Within tracts, the general public may access National Forest lands by walking across lots or parking in areas not under permit. The public does not have the right to use the lands within the permitted "lot boundary" for activities such as picnicking, camping, vehicle travel, or parking. Further information on the history of the Forest Service can be found at http://fs.jorge.com/archives/indexNational.html. See also 16 U.S.C. ch. 81, User Fees Under Forest System Recreation Residence Program.
In addition, some states regulate cottage leases on state forestland. See, e.g., Idaho Code §58-304, Leases, and Idaho Admin. Code 20.03.13, Rules for Administration of Cottage Site Leases on State Lands. Washington does not have such a program. However, under certain circumstances, Washington does provide for the lease of state lands for residential use. RCW ch. 79.13.
IX. Conclusion.
The family cabin is an asset that often serves as a symbol of a family's history, emotions, and values. It is important to recognize that the cabin may also embody negative emotions for other family members. While some cabins are likely to be retained by succeeding generations, others will be sold because the younger generation can't get along with each other, has no emotional attachments to it, can't agree on how to retain it, or simply can't afford it. Understanding the attitudes toward the cabin held by various family members and building consensus is critical to assist the family in developing a master plan to transfer and to continue to happily own the cabin, if that is the goal.
FROM NASCAR CONDOMINIUMS TO PRIVATE MAUSOLEUMS: KEEPING THE VACATION HOME IN THE FAMILY - PART 2
By Wendy S. Goffe
VI. Ongoing Management of the Cabin.
A. Written Agreements.
Once the property has been transferred to the next generation using any of the methods described above, the family will need to put into place a mechanism to manage the property, resolve conflicts, and facilitate maintenance of the property. (See Louis H. Hamel, Jr., Keeping a Vacation Home in the Family for Younger Generations, 23 Estate Planning 123 (March/April 1996) for an analysis of the managerial issues and suggested planning techniques.) This agreement may be in the form of a joint venture agreement, LLC operating agreement, trust agreement, contract, tenancy in common agreement, or bylaws. For most families, an agreement where all members have consented to the terms tends to be more successful than an agreement imposed by the senior generation.
B. Issues to be Addressed.
To assure the smooth operation of the vacation home for the extended family, the agreement needs to facilitate ongoing use and resolve issues that may arise.
The following is an outline of some of the issues that should be addressed in the agreement (adapted from Ken Huggins & Judith Huggins Balfe, How to Pass It On: The Ownership and Use of Summer Houses (1999), pp. 44-55 (used with permission from Ken Huggins and the estate of Judith Higgins Balfe)):
1. How many slots per summer will there be and how long is each slot? Will slots overlap or run contiguously, e.g., Sunday morning to Saturday night? How is the allocation of slots decided, and by whom? Are certain slots more valuable than others (i.e., Memorial Day, July 4th, and Labor Day weekends?) Are more valuable slots awarded on a rotating basis?
2. If there are more families than slots, how are slots to be assigned or rotated? How is "family unit" defined (e.g., a single person and a partner or friends, the traditional nuclear family, or a senior heir with children and grandchildren)?
3. What about early and late season slots? If one family unit can take one and no one else can (perhaps because they don't have school-age children), can they also be eligible for a prime slot? If someone can't or chooses not to take a slot when eligible, do they get priority the following year?
4. Who opens and closes the house at the beginning and end of the season? How is this paid for if someone is hired? If family members perform the task, will their compensation be a longer slot, or one in a prime time?
5. As the next generation comes along, at what point (e.g., marriage, death of parents), do they get to have their own slot as opposed to sharing with their parents?
6. At what point will members of the older generation hand over their responsibilities and/or slot to the next generation?
7. Will there be a user's fee per slot to cover the taxes and maintenance? If not, how will each family be assessed their share? Who will serve as financial manager? Should this position be rotated?
8. How may ownership rights be transferred and how will the family deal with the financial crisis of an owner, such as divorce, bankruptcy, judgment, or other event resulting in a lien against the property?
9. What happens if one family unit, due to loss of job, severe illness, etc., is unable to pay their yearly user fee?
10. If there is to be a buy-out, will the rest of the family do this, or just one or two members? If this is to be an association or corporation with multiple shares, is a partial buy-out possible? How many shares could be bought? What would this mean in terms of use?
11. Whether family members should be allowed to withdraw and sell, and if allowed, how is value determined?
12. What plans could/should be made to make the house more accessible for a family member who is disabled, either through accident, disease, or old age? This is particularly important given the small size and age of many houses.
13. How will maintenance, repairs, and the replacement of improvements be handled? How will an expensive repair, such as a new roof, be paid for? Is it possible to remodel, expand, and add to the house? At what point might this be desirable? How, when, and where will these decisions be made? Who decides when appliances should be replaced and who picks them?
14. How and by whom is it to be decided when furnishings and furniture must be replaced and with what? (This can be among the stickiest of questions. People develop strong attachments to their favorite chair, couch, etc.) How will decorating decisions be made?
15. Who handles legal matters such as any changes in deeds, assessments, and taxes, particularly during the off-season? How should those handling these responsibilities be compensated? With slot time, if at all? Should these positions be rotated? If so, how?
16. What is "sweat equity" worth and when does it go beyond normal duties? It is unlikely that any formula can be devised for normal duties. Will major jobs (e.g., house painting or re-roofing) be compensated? Will a log be kept of normal tasks and jobs each family unit has done?
17. May certain slots be rented by the whole family to outsiders so as to provide funds for taxes and maintenance? How will this happen? Who will serve as landlord? Can individual family units rent their slot? To whom? Who gets the rental fee? Can individual family units let non-family members use their slot or part of it as a gift? (This is sometimes done as a wedding present or donation to a charity auction.)
18. If elderly family members can no longer use their slots alone, with whom will they stay when they come? How will those members be compensated?
19. Will any property, e.g. a sailboat, be reserved for one family and off limits for others?
20. What rules will there be regarding pets? What if certain members have animal allergies? Will the use of pesticides or other means of destroying pests be permitted, to which some have ethical or other objections? Similarly, will foods allowed in the house be restricted for religious reasons: non-vegetarian, Kosher, Hallal, non-alcoholic.
21. How will deer, rabbits, and other wild animals be dealt with if they enter onto the property?
22. Will environmental practices be required, such as recycling, the use of non-toxic or biodegradable cleaning products, and long-life (but dimmer) light bulbs? Will any special dispensations be made on grounds of gender, age, or fear of bugs? What about more expensive measures, such as replacing an outdated septic system? Keep in mind that many cabins are located in areas with fragile ecosystems that can be easily damaged.
23. What will be the formal status of in-laws, stepsiblings? In the event of the death of one of the natural heirs, can the surviving spouse assume his/her role, or will it pass to the offspring? If to the offspring, how old would they have to be?
24. How can the rules be amended when conditions warrant?
25. What procedure will be used to resolve disputes?
C. Powers of Attorney.
When the senior generation has formulated a transition plan (regarding ownership and/or management) but may not have completely implemented the plan, confirm that the agents under their durable powers of attorney will be permitted to do so. Some states require specific provisions in a power of attorney granting authority to make gifts of any type and others require specific provisions authorizing gifts of real property. While the senior generation may have designated particular members of the junior generation under a durable power of attorney, for purposes of maintaining family harmony, they may want to consider appointing multiple children to handle family cabin issues. Also, keep in mind that fiduciary duties may not be delegated under a power of attorney.
VII. Family Homeowners Associations.
If several residences have been built on the family property, or there is a possibility that several could be built, the family ought to consider the formation of a homeowners association to facilitate the ongoing management of the family property. A homeowners association is a formal legal entity created to maintain common areas and facilities and to enforce common covenants and restrictions.
A homeowners association is especially useful where the family intends to create or retain common facilities, such as a dock or swimming pool.
Generally, the procedure to create a homeowners association is to subdivide the property, and cause each lot to be subject to a set of common restrictions and covenants. The rules could:
1. Identify common open space and common use facilities;
2. Restrict or limit development of the affected parcels;
3. Provide guidelines for, or a mechanism to review, construction and development;
4. Establish penalties to encourage compliance; and
5. Restrict transfers or create rights of first refusal if an owner wishes to sell, or if an interest is subject to a bankruptcy or other type of lien.
A homeowners association can be formed as a partnership, LLC, or a not-for-profit association. Typically, each lot owner is required to be a member and pay dues and special assessments. If organized as a not-for-profit entity, it can qualify for an income tax exemption for revenue received from its members under I.R.C. §501(c)(6) or 528.
The rules and regulations of the homeowners association could be established by the senior generation before transferring the property to the junior generation. Or, the junior generation could jointly develop its own association rules.
VIII. Vacation Homes on Public Land.
Cabins on national forest land have existed since the late 1800's, when national forests were reserves and were administered by the General Land Office in the U.S. Department of the Interior. The first lots for private cabins were authorized by the Forest Management Act of June 4, 1897, also known as the "Organic Act," to encourage public recreation. In the early years, thousands of permits were issued on national forests near large cities, such as the Angeles, the Oregon (Mount Hood), and the Pike-San Isabel National Forests. The program continued to grow until permits numbered around 20,000 in the middle of the 20th century.
Often National Forest leases have been referred to as "99-year leases." However, there has never actually been a 99-year Forest Service lease. In the early 1900s, some portions of private land were leased for summer homes and subdivisions for 99 years, and some of those leases still exist. Because they were located adjacent to National Forest land in the foothills and mountains, National Forest Recreation residence tracts became associated with this type of lease.
The Forest Service issues recreation residence permits for a maximum of 20 years. Most of the permits involved high-value recreation land. In 1968, in recognition of other recreation needs, the Forest Service decided against establishing any additional new tracts. In 1976, this moratorium was expanded to include no development of new lots within existing tracts. Transfer of permits takes place now only by sale, gift, or inheritance.
A permit holder and prospective buyer or transferee must meet with the local Forest Service Special Use Administrator to discuss the transfer process. If a term permit is issued, the cabin owner will be permitted the remaining number of years on the current term. This allows for a common expiration date for all recreation residences located in the National Forest.
There is no guarantee that a new Term Special-Use Permit will be reissued at the end of the stated term. If a permit is not going to be renewed, the Forest Service will give 10 years notice, and the permit holder will be required to remove all improvements from the lot and restore it to the original conditions at his or her expense.
A residence under this permit may be used for recreation only and not as a primary residence. In addition, a cabin must be used at least 15 days per year by the permit holder to ensure that the privilege granted by the permit is exercised and the continued use of public land is justified. Owners may only rent their cabins for a maximum of 14 days per year, with written authorization from the special use administrator.
The special use permit does not provide exclusive use of National Forest lands to homeowners. The public is allowed free access for all lawful and proper purposes. Within tracts, the general public may access National Forest lands by walking across lots or parking in areas not under permit. The public does not have the right to use the lands within the permitted "lot boundary" for activities such as picnicking, camping, vehicle travel, or parking. Further information on the history of the Forest Service can be found at http://fs.jorge.com/archives/indexNational.html. See also 16 U.S.C. ch. 81, User Fees Under Forest System Recreation Residence Program.
In addition, some states regulate cottage leases on state forestland. See, e.g., Idaho Code §58-304, Leases, and Idaho Admin. Code 20.03.13, Rules for Administration of Cottage Site Leases on State Lands. Washington does not have such a program. However, under certain circumstances, Washington does provide for the lease of state lands for residential use. RCW ch. 79.13.
IX. Conclusion.
The family cabin is an asset that often serves as a symbol of a family's history, emotions, and values. It is important to recognize that the cabin may also embody negative emotions for other family members. While some cabins are likely to be retained by succeeding generations, others will be sold because the younger generation can't get along with each other, has no emotional attachments to it, can't agree on how to retain it, or simply can't afford it. Understanding the attitudes toward the cabin held by various family members and building consensus is critical to assist the family in developing a master plan to transfer and to continue to happily own the cabin, if that is the goal.
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