Protecting the Family Cottage

Keeping Your Family Cottage In The Family

Do you have a family cottage in Michigan that you want to keep in the family after your death to be used by your children?

A limited liability company (LLC) can be a good way to keep the cottage in the family. Essentially, the LLC is created and the cottage is transferred to it. At the time of death the membership interest in the LLC is then distributed to the children.

Through the LLC’s Operating Agreement, restrictions can be in place that will keep the cottage from ever being distributed to an individual outside of the children or descendants. Doing so protects the cottage from being exposed to claims of children’s creditors or spouses. Additionally, the Operating Agreement includes procedures for assessing costs of repairs and maintenance, who is to use the cottage went, et cetera.

For more information on having an LLC created for your Michigan cottage, please contact us.

Dynasty Trusts in Michigan

As a result of recently enacted legislation in the State of Michigan, we have eliminate the rule against perpetuities relative to personal property. Without a rule against perpetuities we can now draft a Dynasty Trust which is a multi-generational trust that has no end date. Under Michigan's previous law, a trust had to be fully distributed within a set period of time (i.e. 90 years). Since we have now abolished the rule against perpetuities relative to personal property, we can create a trust that will last in perpetuity.

If you have an estate that will be subject to Federal Estate Tax, and you want to provide for future generations without incurring a Federal Estate Tax at each generation, a Dynasty Trust should be considered by you and your estate advisor.

Haiti Donations Deductible 0n 2009 Return

If you donated to the relief effort in Haiti, you will most likely qualify to claim your donation on your tax return as an itemized deduction in 2010. According to the Internal Revenue Service, in order to be eligible for this special tax relief provision, taxpayers must have made cash contributions (as opposed to property) between Jan. 11, 2010 and March 1, 2010.

2010 IRA Conversions

If you have been considering converting a traditional IRA to a Roth IRA, 2010 presents potentially significant tax advantage to making the conversion. The previous income limit of $100,000 has been repealed, meaning that anyone, regardless of income, can make the conversion. Moreover, the income taxes that would be due on the 2010 conversion can be spread over two years. So the 2010 conversion amount may be included as taxable income in 2011 and 2012 - helping to spread out the tax bite.

The Hidden Tax on Estates in 2010

When the Federal Estate Tax expired on December 31, so did “stepped-up basis” on inherited assets. Under the former tax law your heirs received a stepped-up basis on inherited assets which minimized (in most cases avoided) any capital gains tax when the asset were subsequently sold. Under EGTRRA, however, stepped-up basis ended on January 1. Thus, while all estates are free of Federal Estate Taxes in 2010, estates that have assets with significant growth might end up subjecting the heirs to significant capital gains taxes when the assets are sold. Even worse is the fact that an estate that might not have even been subject to Federal Estate Tax in 2009, might now have capital gains tax issues in 2010, even though the Federal Estate Tax has been repealed.