The two preferred vehicles for owning and managing a family cottage are the LLC (limited liability company) and a revocable trust. While there are a number of differences, the LLC is the most flexible and effective choice, and provides liability protection. However, one needs to note that if you transfer the property to an LLC, that it will likely “uncap” the property, meaning the town can reassess the property to its current value which typically can result in a real estate tax increase.

On the other hand, if you use a revocable trust to take title, if properly structured, the property probably would not be uncapped, but then you would not have the liability protection and the other convenient aspects of having it in an LLC for property management purposes. The settlor can name contingent beneficiaries and successor trustees to manage the cottage, which remains owned by the trust. In Michigan, a trust cannot be perpetual regarding ownership of real estate. This is a significant difference from LLCs.

Some attorneys suggest a hybrid version where you use the trust to own the real estate and an LLC to manage the properties, but under this scenario, you still would not receive the liability protection.

In summary, the LLC is the best alternative provided you can live with the property being reassessed. On the other hand, if your main and most important goal is to avoid reassessment of the property, then perhaps the trust might be preferable.


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