VOLUME 27 NUMBER 2 SUMMER 2013 Holding on to “Family Cottages” DAVID GAGE, PH.D. “ ottage” is a word that applies to many associate closely with their families’ cottages: the different types of vacation properties – musty smell of the basement where the wood is C classic cottages, Adirondack “camps” stored or the aroma in the kitchen that forever sur- on a lake, the famous Newport “cottages” of the faces memories of grandma’s fresh-made donuts. Astors and the Vanderbilts, mountain ski chalets, Those olfactory memories are stored in the oldest beach houses, and tiny one-room cabins buried in part of people’s brains and are capable of instan- the woods – but the word typically connotes a very taneously recreating feelings from decades before. special place for families. Regardless of the physi- Penning detects a distinct difference at an emo- cal grandeur or luxuriousness, cottages provide a tional level between his family clients who own kind of “psychological luxury” to families. It is the their own cottages and those who own their own luxury of a permanent place in an ever-changing businesses. While the latter clients often have an world. Cottages provide a sense of stability that is otherwise hard to fi nd in this time of great mobil- ity (Balfe, 1995). For most families, the “childhood David Gage, Ph.D., is a clinical psychologist and home” no longer exists because families change cofounder of BMC Associates, a multidisciplinary team their primary residences so frequently. Family cot- of professional mediators with backgrounds in psychol- tages are often more stable properties than family ogy, business, law, and fi nance. BMC (BMCassociates. homes. Some authors have classifi ed these cottages com) works with business partners, family owned busi- as “identity properties” (Waldeck, 2011). Cottages are nesses, and families with estates. Dr. Gage is an adjunct where people had formative experiences, and they professor at American University’s Kogod School of are cherished because of what they represent about Business where he teaches a course entitled, “Managing one’s self and family, as well as the sense of conti- Private and Family Business.” He is the author of nuity that they give family members to their own numerous articles and the book, The Partnership past and to each other. Charter: How to Start Out Right with Your New People’s emotional attachments to cottages are Business Partnership (Or Fix the One You’re In). often strong and deep, both fi guratively and liter- The author wishes to express his appreciation to ally. Some threads of this attachment actually lie Patrick Goetzinger of Gunderson Palmer Nelson deep within the brain. Attorney Dan Penning, the Ashmore, LLP, Dan Penning of The Cottage Law founder of The Cottage Law Institute in Michigan Institute, and Olivia Boyce Abel of Family Lands who works extensively with families with multi- Consulting for sharing their insights and experiences generational cottages, describes cottage-owning working with family cottage owners during the writing clients who can remember distinct smells that they of this article. Reprinted from American Journal of Family Law Summer 2013, Volume 27, Number 2, pages 89–96, with permission from Aspen Publishers, Inc., Wolters Kluwer Law & Business, New York, NY, 1-800-638-8437, www.aspenpublishers.com Law & Business 2 AMERICAN JOURNAL OF FAMILY LAW emotional connection to their businesses, the former to multiple siblings, they might feel motivated to tend to have more visceral emotional connections take certain precautionary steps that would either to their cottages. improve the likelihood of a successful transfer or Families may take vacations at beautiful resorts, would help them all decide that passing on the cot- but those do not usually compare in terms of total tage to their children is not the best path for their time “in residence,” and people cannot make resorts family. their own like they can their cottages. Going back year after year, families tailor their cottages to refl ect First-Generation Cottage Owners who they are. A cottage is often the only long-term shared physical asset: the only thing parents and For parents who build or buy a family cottage, their adult children can point to and say, “[w]e all ownership is relatively straightforward as com- love it and all share it.” What Winston Churchill pared to what it will become when it is owned by once said about our houses may now be truer about subsequent generations. Parents have the luxury our cottages: “[f]irst we create our houses and then of deciding whatever they wish for their cottage: our houses create us.” they can change the color of the siding, remodel a Parents who own cottages often own them free bathroom, invite friends to stay over, buy a new and clear (80% of all family cottages are mortgage- boat, or sell a back lot. As owners of the prop- free according to Hollander et al., p. 102), and the erty, they rule the roost and call all of the shots. cottages often represent their largest asset, both fi nan- Although some decisions may be diffi cult for cially and emotionally. As they begin thinking about the two parents to agree on, the decision-making estate planning, they face a multitude of questions: process is simpler than when multiple owners are Is it better to hold or fold? Does the potential future involved. value of the cottage to the family exceed its market All during the fi rst-generation phase of cottage value? Can this cherished property be passed to ownership, even as young children become adults, the next generation? Even if it can be passed, should there is a simplicity about the sibling relationships it? Will the adult children be able to share the cot- with respect to the property. Parents still handle tage together without confl ict? Some, doubting their the details, such as picking up the tab for expenses children’s ability to do so, decide to sell. Some with or settling a spat among the adult children. Even doubts nevertheless leave the cottage in their estate, though sibling relationships may become com- deciding to let it be their children’s problem – not plicated by spouses and another generation of theirs – if they cannot get along. Other parents con- offspring as children grow up, the siblings’ rela- clude, rightly or wrongly, that their offspring will be tionships at the family cottage are still dominated capable of handling the challenges of co-ownership, by the parents, who are given deference because so they pass it on as a gift or for a nominal price. In it is “their cottage.” Moreover, while parents own any case, these decisions have serious consequences the cottage, siblings’ access to the property is fairly for the family, some of which only become apparent easy and informal, and is more about access to the years – sometimes generations – later. parents/grandparents than access to the cottage itself. Things tend to be organized around the fam- ily system, which means that the expectations or FAMILY COTTAGES: THE INTENTIONS rules are the same as they were when the children OF THE PARENTS VERSUS THE REALITY were young kids. Everybody knows the routine; OF THE SIBLINGS spouses and grandchildren assimilate and learn the culture through modeling the siblings, with explicit The intention of preserving a happy place for corrections when necessary. children and grandchildren usually has more to do First-generation cottage owners hope that their with family welfare and pleasure than either asset children will be able to maintain the idyllic, care- appreciation or property preservation. The hope is free aspects of the family cottage. Optimistically that the cottage will continue to play the same posi- or naively, parents project that co-inheriting the tive “identity” role in the second generation as it cottage will be a positive force in their children’s played in the fi rst. But the reality for future genera- relationships that will cause them to spend more tions often falls short of the dreams of the original time together, get to know one another better and, owners. If parents had a more realistic picture of consequently, build strong, close relationships with how challenging it is to transfer cottage ownership one another. The parents want their children’s HOLDING ON TO “FAMILY COTTAGES” 3 ownership experience to be as straightforward and Though one or both of them may wish to maintain a easy as it was for them. Sometimes it works that “safe” distance, the need to work on some aspect of way for the children but, too often, the experience their shared property may force them to deal with of the second generation is very different than their one another before they might otherwise be ready. parents envisioned. While shared cottage ownership forces siblings to spend more time together, it is often not the carefree time they had experienced at the cottage when their Second-Generation Sibling Owners parents were still in charge. The tensions of cot- When parents transfer cottage ownership to their tage committee meetings replace the joy of sailing adult children, the relationships of the siblings to together and barbequing hamburgers. The siblings’ one another, and to the cottage, change dramati- shared asset requires their ongoing fi nancial support cally because they are now forced to deal directly and continual involvement in a long list of issues with each other about their shared responsibil- such as scheduling the use of the cottage (especially ity. They must jointly make all sorts of decisions during the high season); remodeling and making regarding their shared asset. capital improvements; storing boats or other equip- Parents often do not realize that, unlike transfer- ment on the property; entertaining guests; having ring other assets, transferring co- ownership in family young adult children and their friends at the cottage cottages forces changes, often diffi cult ones, in their unsupervised; hiring a caretaker, cleaning people, or adult children’s relationships.