Insight, February 2014
Estate Planning, Estate and Gift Tax
Cabin Succession Planning Strategies:
Using Mediation to Overcome Roadblocks
By Margaret Cronin, Partner, Stinson Leonard Street
LLP and Aimee Gourlay, Director, Mediation Center
for Dispute Resolution
Cabin succession planning is the process of creating and
implementing a legal structure designed to maintain family
lakeshore property with multiple owners through multiple
generations. It can be a complex undertaking, particularly
when the plan requires consensus-building among a large
group of family members.
Typically, the process uncovers hot-button issues that
become roadblocks to planning. Those can include:
financial contributions from family members, buy-outs and
opt-outs, decision-making and governance, succession of
ownership and dividing property.
Families can use mediation to find creative solutions that
address all family members’ concerns and prevent hurtful
conflict in the future. However, cabin succession planning
mediation differs from traditional lawsuit settlement
mediation. It is important family members are prepared for
what can be, at times, a difficult discussion.
Financial Contributions
Often, when the parent generation is initiating the cabin
succession plan, they wish to pass the cabin down to their
children and grandchildren along with an endowment fund
for covering the expenses of maintaining the property and
recreational equipment. If there is no endowment, a
process must be established for collecting money from each
owner or user of the cabin property. The issue of financial
contributions can become a roadblock as family members
struggle with issues of fairness:
•
How should the annual fee be determined?
•
Is it based on ability to pay or frequency of use?
•
What if a family member cannot or does not pay?
•
Who becomes the family collector?
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Buy-Outs and Opt-Outs
A key decision in creating a cabin succession plan is
whether the lakeshore property should be considered a
financial asset or a sentimental one. If it is a financial asset,
an owner of the property should ostensibly receive some
remuneration upon selling his or her interest in the property
(a buy-out). If the property is being passed down to preserve
a sentiment or legacy, then the plan is often structured so
that a departing owner receives no immediate financial
benefit (an opt-out). Family members frequently have
different views on whether a buy-out or opt-out is
appropriate, and how to set the terms:
•
What is a fair purchase price?
•
Should the purchase price be discounted? Can it
be paid over time?
•
What if the buyer defaults?
•
If someone opts-out, how will the other owners bear
the financial burden of the property?
•
What if the property is later sold? Should an optedout owner participate in the sale proceeds?
Decision-Making and Governance
A common thread among cabin succession plans is
creating a governance structure that will streamline
operations and decision-making related to the lakeshore
property. The larger the ownership pool, the more crucial a
representative system of governance becomes. Family
members will need to categorize the types of decisions and
determine who will have authority to act:
•
Should there be a category of “substantial
decisions” – such as whether to make a large
improvement or sell the property – that require a
vote of all owners?
•
Should there be a second category of “annual
decisions” – such as setting the budget – that can
be made by a representative group of family
members?
Executive Briefing, February 2014
•
•
Is there a third category of “day-to-day decisions” –
such as arranging for dock installation and cleaning
– that can be made by designated family
managers?
What happens if an owner disagrees with the
decisions made?
Succession of Ownership
A transfer of ownership from one parent generation to the
next generation can be a relatively simple undertaking. The
succession of ownership from the child generation and
beyond, however, can be a source of contention for family
members:
•
Should spouses of the child generation be eligible
to become owners after the death of the child? If
so, what if the spouses remarry?
•
Should there be a second class of ownership for
spouses and younger family members?
•
Do the other owners have the discretion to
“upgrade” or “downgrade” a spouse’s or
grandchild’s ownership interest?
•
If so, how can the family ensure that this discretion
will be exercised fairly?
Dividing Property
In some cases, the lakeshore property is capable of
sustaining multiple generations of owners as one parcel. For
other families, once ownership becomes spread among too
many owners – cousins and second cousins – it may make
sense to divide the property so that each family branch can
own and operate its own lakeshore parcel. Dividing
lakeshore property can be challenging:
•
What if one proposed lot has more lakeshore than
the other lot?
•
What if the cabin on one lot is newer than the
cabin on the other?
•
Should dollars exchange hands among family
members to equalize the split?
When roadblocks arise in the cabin succession planning
process, the drafting attorney can act as facilitator. This
usually involves gathering input from family members,
identifying the hot-button issues, laying out legal options,
and allowing the family members to work through the
decisions together.
In many cases, cabin planning discussions strike chords that
are related to deeper issues of fairness in the family system. If
family members become entrenched in their respective
positions or unable to make decisions in a healthy manner, it
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is appropriate to engage an expert whose role is to help the
family reach consensus.
Mediation
Mediation is a structured process in which an impartial
person facilitates the participants’ negotiation. It is an
effective means for family members to work through their
issues and create durable and do-able agreements. The
mediator helps the participants define the agenda items,
identify their needs and interests, listen fully to each other
and articulate their ideas, and ultimately to reach mutually
agreeable solutions. In addition to making decisions about
the legal structure for cabin ownership and operation,
participants may cover topics with each other that will
increase the likelihood of peaceful coexistence going
forward:
•
What are the connections to, and hopes for, the
property?
•
How do the family members imagine using it in the
future?
•
Are there past problems which could be worked
out now in order to prevent recurrence?
•
How will family members communicate with each
other?
•
How will family members handle future conflict over
the property?
Mediation is not about right and wrong and the mediator
does not make decisions or issue rulings. Mediation is not
therapy. While it may be therapeutic to have a family
discussion, the mediator focuses on decisions for the future
and not reconciling the past.
Traditional Lawsuit Mediation
A mediator uses a wide variety of tools to facilitate
negotiations. Mediation of court cases usually focuses on
settlement of the litigation. The mediator frames the
discussion around the legal issues and helps parties assess
the likely outcomes at trial and risks of not reaching terms of
resolution. Traditionally, civil court mediations include the
parties’ attorneys if they have them, and the litigants are in
separate rooms while the mediator goes back and forth
between the rooms. Cabin Succession Planning mediation
may or may not include attorneys and oftentimes families
meet together for extended discussions in lieu of, or in
addition to, meeting in separate rooms.
Cabin Succession Planning Mediation
As discussed above, a family’s concerns are varied and
broad in cabin succession planning. Family relationships are
generally deeper, and the relational ties more enduring
Executive Briefing, February 2014
than those of lawsuit litigants. Therefore cabin succession
planning mediation is varied, depending on each family’s
situation. Mediators may solicit input from all participants
through confidential private discussions before convening
the whole family in mediation. Mediators integrate
information from private discussions to define the process
and frame the agenda:
•
How/will spouses of family members whose relatives
first owned the cabin participate?
•
Are family members within the same branch of the
family in agreement with each other?
family participates as a resource person during the
mediation session.
In addition to legal rights, the participants should explore
their own personal interests and goals, and think about how
to articulate them with the intention of moving the family
closer to decisions. Family members should be prepared for
the discussion to be difficult at times; there is often stress or
emotional impact when discussing cabin succession
planning decisions. It is a good idea to have a negotiation
plan and yet remain flexible:
•
What questions remain?
•
Will multiple generations be present?
•
How will information be shared and when?
•
Are there issues between some members of the
family getting in the way that may need to be
addressed before mediation?
•
What is the highest hope for the mediation
outcome?
•
What can realistically be done?
•
What is not acceptable?
•
What is most important to the others involved and
how to address those needs?
•
What “bottom line” terms absolutely must be
achieved?
•
How has joint ownership been working or not
working?
•
Perceived barriers to addressing problems?
•
Is there any additional information sharing or data
gathering needed in order to make decisions?
•
Do the family members want to address
how/whether they will share information to those
not present in the mediation? (The mediator is
ethically bound to maintain confidentiality.)
Benefits of Cabin Succession Planning Mediation
Mediation can help families find creative solutions that
address all family members’ concerns and prevent hurtful
conflict in the future. Families “own” the solution, having
constructed it together to meet their unique situation, which
makes it more likely to be followed. They also have the
opportunity to clarify past misunderstandings and
understand family dynamics, which may foster improved
relationships. In addition to making decisions on the legal
structure, families may consider:
•
What communication protocols will help change
dynamics that get in the way of discussions?
•
How to address future conflicts?
•
What are the families’ goals for the use of the cabin
and property into the future?
Preparing for Cabin Succession Mediation
Attorneys may or may not attend the mediation session.
Either way, the family participants will want to talk with their
attorney(s) before mediation in order to understand their
legal rights and options. This gives them information they
need to make decisions. Sometimes, one attorney for the
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Whether families resolve issues on their own, with their lawyer
or the assistance of a mediator, taking time to fully discuss
and address the roadblocks is important. Ultimately it may
prevent years of family strife, increasing the likelihood that
the family cabin remains a place of shared history, where
family members can relax, enjoy each other and create
new memories.