Cabin Trusts and “Like Kind Distributions”

What can you do if one of your kids doesn’t want to keep the cabin or vacation home after you pass? First of all, when considering whether a Cabin Trust is right for any family, I always encourage my clients to simply ask the kids whether they would want to keep the cabin when the parents pass away.

If all the kids say they don’t want to keep the cabin, then there’s no need for a Cabin Trust in your Will or Trust planning.

But more often than not, one or more of the children wants to keep the cabin and one or more don’t. In these situations, we allow for all the children to opt-in or out of the Cabin Trust at the time the parents pass away.

Typically, a time is set in the Will or Trust itself when the children can elect to be in or out of the trust. For those children who decide to opt out, we can compensate them with other estate assets.

This is called a “like kind distribution” and it works as follows:

Imagine that a family has an estate plan which includes a trust for the cabin or vacation home. The Cabin Trust lays out the parameters of the cabin’s use, equity, taxes, expenses, maintenance, and buy-out provisions.

The estate plan also has an option for each child to consider and that is-

Do I want to elect to be a part of the cabin or not?

If a child decides within the timeframe allowed (generally six months after the surviving parent passes) to opt-out of the cabin, that child receives what would have been their share of the fair market value of the cabin in other assets.

Let’s look at a ‘real world’ example:

So, in this example, we assume there are four children and the cabin is worth $400,000.00.

If one child opts-out of the cabin trust, then they may receive the equivalent value of their share in other assets such as retirement accounts or proceeds from the sale of the family home. This “like kind distribution” ensures each child gets an equal inheritance but doesn’t force children who would prefer not to be a part of the cabin trust to share ownership with their siblings.

Again, the goal of every estate plan should not stop at the successful transfer of assets to the next generation. Rather it should also be about preserving family relationships after a loved one passes. The like kind distribution approach is just one of many ways we accomplish this goal when a family cabin or vacation home is part of your estate.