New York Estate Planning & Elder Law Blog
Many families purchase vacation homes that they and other generations in their family can all enjoy together. However, vacation homes can also lead to some serious family feuds when it comes to estate planning. One of the biggest mistakes in estate planning when a vacation home is involved is to leave the question of ownership, sharing, and other issues without a detailed succession plan. If a plan cannot be agreed upon with you and your loved ones, you may want to consider selling the home before any fights begin.
Selling the Vacation Home
Sometimes selling the vacation home makes more sense than leaving it to loved ones. Your children or grandchildren may not be able to afford the taxes, upkeep, maintenance, and travel to the home. In addition, the recovering real estate market means that your family could make some money selling the home that could be added to their inheritance. The money from the sale of the vacation home could also go to your long-term care or that of your spouse.
Succession Plan for the Home
If you decide to keep the vacation home, it is crucial that you draft a succession plan for your family. The plan should outline how your family members will split the expenses, repairs, taxes, and insurance on the home. Accounts can be created that family members pool their money into to cover the basic costs of the vacation home.
Household chores should also be discussed in the vacation home succession plan. Oftentimes, cleaning and caring for the home can cause tension among family members, so create a plan that gets everyone involved. You can create a rotating schedule to take care of chores around the house, or you can hire a cleaning service to take care of it for you. If one family member decides to serve as the primary caretaker for the home, consider leaving them a small bonus in the estate for all of their hard work. Conversely, if a family member cannot pay for their share of the expenses, they can take on more of the caretaking responsibilities for the home.
Transferring the Vacation Home
Another common issue is determining how to transfer the vacation home from one generation to the next as well as what tax implications the transfer can have on the family. Many families set up a limited liability company (LLC) or family limited partnership to facilitate the transfer. The business entity would be the technical owner of the property, and not your family members individually. Your family members would then be issued “shares” of the property through the limited company.
There are a few benefits to transferring the property through the creation of an LLC or family partnership. For one, the agreement can include all issues surrounding the vacation home like the payment of expenses, scheduling, and other guidelines for the home. In addition, there can be no forced sale of the home if one family member wants out of the agreement, and it can create buyout terms for that situation.