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bulljive
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# Posted: 15 Oct 2013 12:03pm
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I hope someone can give some suggestions or advice.
Four siblings (all US citizens) have inherited an Ontario vacation property (cottage), and I believe the current arrangement we have is 'joint tenancy with right of survivorship'.
We'd like to have more formalized legal agreements concerning the property. Some goals are the ability for a sibling to buy out another's share of the cottage, pass on their share to an heir, be legally bound to share in the annual expenses (tax, upkeep) of the cottage, protect the cottage ownership from creditors or adversarial ex-spouses (if the situation arose...), and so on.
I hear some people in the United States start an LLC which owns the family property, and the owners then own a portion of the company. This allows families to set up more formalized agreements than what we have as 'joint tenancy' or 'tenants in common'. I've been told LLCs don't exist in Canada however.
What would some of our options be for the Canadian property? Thanks in advance for sharing-
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MtnDon
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# Posted: 15 Oct 2013 01:23pm
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See a good lawyer if you do not want the possibility of future problems.
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TheCabinCalls
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# Posted: 15 Oct 2013 02:29pm
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I have heard of it working well and I have heard of it being able to divide families.
- look for future problems to arise:
- people live to far and can't enjoy it, "so why should I pay"
- people can't handle or respect responsibility for the property
- people are greedy and they are entitled
- people don't value the legacy
Even a lawyer is not going to be a babysitter. Search for the simplest way to keep the property in the family. make a trust or an LLC and define roles within the terms. Someone handles treasury, someone schedule, someone grounds, etc. Also find some kind of buy out plan that won't jeopardize the entire estate, because if the value goes up then someone will likely bail. But remember it was never about the money for the person that passed it down.
For me there would be no buy out. I'd take the value of the property off the table. Either you want in on using it and keeping it up or you don't. The property isn't going to be sold and will be passed down again and again. Maybe I am just more honest, but if it became too much for me to use I would just bow out and not expect a cent. The memories and use should be enough. Would you really be willing to approach your grandma and say, "thanks for letting me come up here, but since I can't make the trip anymore you should give me 25% of the value." Sorry I digress. It just makes me sad to see properties fall out of family hands because of greed and entitlement. Someone else worked and earned it, you are just the guarding of the legacy. If you bail on that you shouldn't get paid.
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TheCabinCalls
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# Posted: 15 Oct 2013 02:32pm
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I know you were looking for actual answers on your question of Canada vs US legal parameters, but this topic gets me fired up.
My understanding is that even if assets are outside of the us the fact that there are 4 US citizens means an LLC here would work.
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toyota_mdt_tech
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# Posted: 16 Oct 2013 09:40pm
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How about a land trust? IS this the right application?
http://www.biggerpockets.com/articles/233-land-trusts-made-simple
Set it up just like those who left it behind would of wanted. I'm certain they didnt give it away only to be broken up and sold off for some cash. As they could of done that if they wanted to sell it.
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razmichael
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# Posted: 17 Oct 2013 08:50am
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Quoting: MtnDon See a good lawyer if you do not want the possibility of future problems.
Yes!! Consider all sorts of scenarios and determine how you want to handle them.
I only need to look at my Mothers side of the family where, way back they had a great deal of lake front property, including a bunch of cabins and a hunting lodge. Over they years and through family members passing away the battles started over who had rights to what. One family would spend a bunch of money fixing up a cabin that they used a lot and then another would come along and want to use it. Similar problem on my Father-in-Laws family history - ongoing battles over the years on a recreational property. What happens when a large repair bill is due and one "owner" who never uses the property complains about paying part of it? I have seen/heard of too many cases where family members figured they could handle this type of things cooperatively but, as things change the battles begin. Sad but...
Our cabin is sitting on land my father bought 40 years ago for us "kids". The only reason I have built a cabin is because I was able to purchase the pieces from my siblings - nothing to do with how I get along with them - just to keep things simple.
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bulljive
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# Posted: 19 Oct 2013 09:59am - Edited by: bulljive
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Thank you all for sharing your thoughts. These are exactly the issues we are thinking about. Our property has a lot of great shared memories and we want to set things up to prevent future problems.
TheCabinCalls's thought about a U.S. LLC owning Canadian property is interesting and I'd like to learn more about that. It's also a good thought about not allowing fellow owners to sell their share... we'd have to give that some thought. The nice thing about being able to sell one's share is that it can help justify the money being put into the property (maintenance, improvements), even if you're currently not able to use it. In our example, one sibling hasn't been able to go up there lately and I know the shared maintenance is a thorn in the side for them, but I don't think they want to bow out of the cottage yet either. I suspect that just knowing they can possibly sell their share to a family member or pass something of value on to their child might give this sibling some peace of mind and help justify the current costs.
Thankfully for us (in a way), the property isn't wildly valuable at this point (less than 200k, divided by four owners). I get the feeling the BIG problems come when the property becomes really valuable, then people see dollar signs want to cash out but no family members have the means to buy them out. In our situation, I'm pretty sure one or two of the siblings (myself included) would gladly buy another 50k share of the property if given the choice.
I'm wanting to do some due diligence and get some ideas about all this before talking to a lawyer. Thanks for your help, and feel free to share other angles to this situation.
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TheCabinCalls
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# Posted: 21 Oct 2013 04:27pm
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You have some things to consider for sure. You might also ask the lawyer if you are already in some form of agreement now. Unless I assume incorrectly, it sounds like you are all part owners. If that is the case you have to be careful not to poke the bear and also make some arrangements everyone can agree to that keeps the purity of the property intact.
For example if all of you are already shared owners it will be hard to set a limit on the rate at which the property can appreciate or set an agreement that it always stays in the family if at least 50% want too keep or a equal divide of usage time. Or a pay to play scenario for that works for people that visit and don't visit.
Now if you are the one passing it down then you can be a little more creative with the approach.
I will try to drum up some paperwork from others that went through this recently.
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bulljive
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# Posted: 22 Oct 2013 10:23am
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TheCabinCalls: that would be great to see what some others have done in this situation.
The idea of setting a max. rate on how quickly the property can appreciate is new to me. I assumed an appraisal would be done every time a share is sold.
And yes, the siblings are all part owners (Joint Tenants).
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beachman
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# Posted: 22 Oct 2013 05:58pm
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bulljive, Hopefully when the final return was prepared, a T1062 was filed and the proper Canadian income taxes were paid. There are step ups for US owners under the Treaty depending on the length of ownership - pre 1980 and valued at 1984, the date US capital gains came back into effect. If so, then the current owners have a pretty good basis on a tax-paid manner.
I agree with some of the other comments about joint ownership but since it was left that way, the four of you should come to a formal agreement about maintenance and use. I have a cabin that was left to me by a US parent and I filed the necessary documents and the Canadian return for the disposition (just like Canadians who own US property at death must file a US return - and possibly deal with estate tax issues). I do all of the maintenance and enjoy the property and my siblings will come from time-to-time. I am sure that they do not realize the work that must continually go into the place but I am glad we have this place and get to be together with family members. Have a family meeting and work out the details! Add up the yearly bills and charge a reasonable rent for use. Also add the time each person takes to do things and value this at say $30 per hour - document carefully! Split the net and those who cannot/will not pay lose a percentage of ownership. When they do, it could be a partial disposition and the individuals might have to report this. Good Luck!
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