Family Vacation Homes – Blessings or Curses?
Posted on February 8, 2018
Leaving a vacation home to your children is one of the most sentimental thoughts in estate planning. Many years of fond memories and family gatherings are contained within the walls of that home, and it seems a great way to leave a legacy that will remind your children of those wonderful times. But without proper planning, those sentimental thoughts can quickly give way to painful discord, financial burdens, and even resentment after your death.
The first step that many parents overlook before leaving that legacy is to determine whether it makes financial sense to keep the home in the family. In most cases, the answer is yes, but liquidating that second home has become a necessity for some parents who are living off their assets and need all their assets to generate a return. When in doubt, parents should take care of their financial needs first.
The next step is to find out whether your children actually want the home and will equally share in the use and enjoyment of the property. Some children may have to travel much farther to visit the home and some may not be equally able to pay for taxes, upkeep, insurance, repairs, maintenance or unexpected damage. If the value of the vacation home makes up a substantial portion of your overall estate, some of your children might prefer a more liquid inheritance that can make a difference in their day-to-day ability to support and enhance their family lifestyle.
If you leave your children as equal owners, they will have to agree on all decisions regarding the home, including when each of them can use it, whether to rent it out when not being used, whether to sell it (and at what price), and what repairs or maintenance will be needed. There may also be concerns that a child’s share in the vacation home could pass outside the existing family through death, divorce or creditor claims.
So if you are thinking of leaving a vacation home to your children, the first step is to talk to them individually and be open and direct about your goals and intentions. Ask them how they honestly feel about the idea and outline the obligations and financial responsibilities that accompany such a gift. You may uncover some attitudes, as well as personal situations, that could affect how you would set up this joint ownership or whether to do it at all.
If those discussions still lead you to believe you want to continue down that path, the next step is to seek the guidance of an estate planning professional who can discuss various forms of shared ownership that can potentially minimize future conflicts. Placing the home into a limited liability company, a family partnership, or into a trust and appointing an independent trustee to be responsible for making all decisions may help alleviate some of the tensions caused by direct ownership. You will have to include money in your estate to cover the carrying costs of the home for a reasonable period of time. You may also want to give your children a right of first refusal to purchase the home in the event of a future sale.
Your vacation home may have been a place that held your family together for many years. With insightful forethought, professional planning and proper documentation, you may choose to conserve the property for the next generation or elect to liquidate during your lifetime. Whatever you decide, The Trust Company is here to help.
Contact a Trust Company Wealth Services Advisor to assist you with questions about your family vacation home or other properties within your estate.
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