November 28, 2015

Who Controls a Cottage if it is Transferred to an LLC?

Who controls a cottage after it is transferred to a limited liability company ("LLC")?  Will an owner or co-owner lose control over the decisions related to the cottage if it is transferred to an LLC? 

Well, it depends on how the LLC is structured.  If the LLC is structured as a member-managed LLC, all of the co-owners (who are now called "members") will be involved with each and every decision related to the ownership and management of the LLC.  However, if the LLC is manager-managed, a manager will make many of the decisions related to the ownership and management of the LLC. 

For owners who want to maintain a large degree of control over a cottage, he or she can do this by acting as the manager of the LLC.  It should be noted, however, that if other family members are given membership interests in the cottage, those family members might still have a say in certain decisions related to the cottage (for example, perhaps a majority or super-majority of the members can remove the manager).  The provisions of the Operating Agreement will determine how much say the members of the LLC will have in decisions related to the ownership and management of the cottage.   

Although it may be difficult for an owner to cede some or all of the control over the decisions related to a cottage, in some cases, ceding control is beneficial because it allows the next generation to learn about and understand the intricacies of managing the cottage.  In other cases, however, the owner might want to retain control with an iron fist.  If so, the owner should act as the manager of the LLC and provisions should be included in the Operating Agreement to restrict the ability of the members to make various decisions (including the ability to remove the owner as the manager).

As we have stated before, each family is unique.  Therefore, a cottage plan must be tailored to fit a family's specific needs and desires.  

© 2015 Varnum LLP


About this Author

Christopher J. Caldwell, Estate Planning Attorney, Varnum law Firm

Chris works intimately with clients and their advisors to create estate plans that enable families to plan for today as well as for future generations. Chris regularly prepares sophisticated estate plans, emphasizing probate avoidance, estate tax planning, and business succession planning. In addition, Chris has an emphasis on helping families with cottage succession planning. Chris's practice also includes a significant focus on post-death planning and estate and trust administration.

Laura E. Radle, Varnum Law Firm, Real Estate Attorney

Laura is an associate in the estate planning group with an emphasis on cottage succession planning, and estate and trust administration. Laura is licensed to practice estate planning law in both Michigan and Florida.