Cabin and Recreational Property Planning: After we are gone, we ...

An endowment fund is an incredible gift to the whole family. ?Where one or more new owners lack the financial resources to meet their share of expenses, the endowment allows them to continue to enjoy the family property. ?Creating an endowment can be as simple as directing funds to the cabin trust or cabin LLC from your main estate plan. ?For example, "upon my death I leave my cabin to the cabin trust I have created under Article such and such of my revocable living trust. ?I also leave $100,000 to my cabin trust for the payment of expenses and maintenance that my trustees, in their full and absolute discretion, deem appropriate."

Life insurance can also be used to establish an expense fund. ?Insurance can be owned on the lives of the cabin owners (and on the beneficiaries for that matter). ?At the owner's death, the insurance is paid into the cabin trust or cabin LLC. ?The cabin trust or LLC operating agreement may simply allow the funds to be used at the trustee's or manager's discretion, or it might specify that the funds are to be used only for major repairs such as a new roof or septic system. ?These choices are very specific to each family. ?For estate tax reasons or legal clarity, it may be advisable to direct the insurance into a separate trust from the trust holding the cabin but have both trusts managed by the same trustee(s).

Here's an example. ?Bob and Pat are reasonably healthy 65-year-olds. ?They want to have a $300,000 endowment after they are gone to help pay for expenses of the cabin for their children, at least one of which could not afford to be an owner for very long without this type of planning. ?If they direct those funds from their estate, the cost to them is $300,000. ?Instead they purchase a second-to-die life insurance policy in that amount. ?This type of policy pays out only at the second death, but at that time it pays $300,000. ?To get this coverage they were required to pay $4,400 in annual premiums. ?They do that for twenty years and thus have paid a total of $88,000 to the insurance company issuing the policy. ?Accordingly by use of this insurance, they reduced the effective cost of creating the endowment by 71%, from $300,000 to $88,000!

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