Summertime memories at the lake, fall weekends spent hunting, or winter trips to ski slopes, Wisconsin families often have a second property where they can enjoy extra family time. This could take the form of a cabin on a lake, a place out in the woods for hunting season, or a condo near a ski hill. These properties do more than just offer a way to diversify one’s financial portfolio, they also serve as a place to build family memories.
Those who own these properties likely want to pass them on to future generations and keep building those memories. Two common options used to transfer these pieces of property include ownership structure and the use of a trust.
What is ownership structure?
The ownership structure refers to how the owners hold the property title. The rules will vary depending on the state. Two common examples in Wisconsin are tenancy in common and joint tenancy.
Tenancy in common refers to two or more owners who own a percentage of the property as defined within the deed. Ownership generally passes to the owner’s heirs, not the other owners. Parents may name two children as the owners under this structure and their percentage will likely pass to grandchildren and so on down the line.
Joint tenancy refers to two owners with the ownership transferring to the other owner. If parents name both children in this situation, when one dies the ownership will likely shift full ownership to the remaining child.
It is important to note that these are generalities and families can use additional tools to further guide transfer of the property.
What is the role of a trust in legacy planning?
A trust is a legal tool that a family can use to help transfer assets from one generation to the next, and beyond. These legal tools provide the creator with control that can last in perpetuity. This is because a trust is guided by the documents used to create the trust and the language used to create the trust can help determine how long it lasts. The trust can include instructions to help encourage certain use and, as discussed in further detail below, additional funds to help cover ongoing expenses that come with property ownership.
There are various benefits that can come with putting real estate into a trust but it is important to note that these are complicated legal tools. It is wise to discuss this option with an attorney to make sure it is set up according to your wishes.
Is there anything else I should know about legacy planning and real estate?
It is also important to account for the potential of the additional financial impact this type of inheritance can have on future generations. This can include ongoing expenses associated with the property like:
- Maintenance. A roof may need repair, a furnace replaced. These maintenance needs can quickly add up and it is important to have funds to cover the expenses.
- Taxes. Do not forget that real estate generally comes with tax obligations.
- HOA. Some properties are part of a homeowner’s association. If so, it is wise to plan for the management of these expenses.
Although this does not provide everything you need to know about legacy planning, it can serve as a starting point to initiate a conversation about your plans.