June 28, 2022

Volume XII, Number 179

Advertisement
Advertisement

June 27, 2022

Subscribe to Latest Legal News and Analysis
Advertisement

Minimizing the Legal and Financial Risks of Cottage Ownership

While cottage ownership comes with many rewards, it also comes with some financial and legal risks. Accidents and injuries that happen in the cottage, on the dock, or on surrounding waterfront property can expose a cottage owner to legal and financial liability. Cottage owners should be diligent in maintaining the property, but also diligent in establishing the proper protections to keep the cottage in the family for generations to come.

One important protective measure is umbrella liability insurance. The umbrella policy is often written for $1 to $5 million worth of coverage and will pay for all fees and costs associated with a cottage owner's liability. For approximately $200 a year, a cottage owner can buy $1 million worth of coverage, with an increase of $100 - $125 for each additional $1 million in coverage. The rates per million decrease as coverage increases.

Another protective measure is to hold the cottage as a Limited Liability Company ("LLC").  This would limit a cottage owner's personal exposure to liability from accidents and injuries that occur on the property. An LLC confers limited liability on all owners (known as "members"), and each member will generally have personal liability for only their actual contribution to the LLC.  In contrast, a cottage held personally could expose the owner to extensive personal liability.

The LLC does not confer liability protection against all accidents and injuries. A cottage owner may still be personally responsible for any carelessness that contributes to an accident or injury. For example, a cottage owner hosting a party where a person gets injured by falling through a loose board on the dock may still be sued personally if the injury can later be attributed to the owner's carelessness.

The best protection for a cottage owner is a combination of care, consideration, and coverage. Be aware of potential dangers on the cottage property. Consider holding the cottage in an LLC, rather than personally. Purchase adequate insurance coverage to protect from unforeseen dangers that may arise. These protective measure can provide security for yourself, your loved ones, and your beloved family vacation home.

© 2022 Varnum LLPNational Law Review, Volume III, Number 262
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Christopher J. Caldwell, Estate planning lawyer, Varnum
Partner

Chris is a partner and leads Varnum's Estate Planning team. Chris is acutely aware that advising clients on estate planning and wealth succession requires an intimate understanding of the client's goals, hopes, desires, and concerns in order to accurately prepare an appropriate plan. As such, he 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...

616/336-6951
Laura E. Radle, estate planning attorney, Varnum
Partner

Laura is an attorney in the firm’s estate planning team where she helps individuals and families to identify their estate planning goals and to create a plan that is tailored to meet their specific needs. Laura’s practice includes a full range of estate planning and estate settlement services including the preparation of basic or complex estate plans, tax planning, business succession planning, cottage planning, charitable gift planning, and estate and trust administration services.

As a member of the Family Business Team, Laura assists business owners with the...

616/336-6415
Advertisement
Advertisement
Advertisement