What's Your Plan For The Vacation Home?
Whether it is a palatial estate where Rockefellers and Vanderbilts would feel at home or a rustic cabin in the woods complete with an outhouse, a family vacation home often carries sentimental value that doesn't show up on financial ledgers. That is all the more reason why owners of such homes should plan for the orderly transfer of the home for future generations.
Estate Planning Options To Consider
With the help of some professional guidance, owners can choose from a variety of options tailored to particular situations and priorities.
- Outright sale of the property to a third party is simplest, but be prepared for substantial capital gains if the property has been in the family long enough to appreciate in value.
- A simple bequest can be used to keep the home in the family, but, by itself, it may not address issues such as use and maintenance.
- A trust, in particular a Qualified Personal Residence Trust, has some tax benefits. The grantor gifts the property but retains a right to use it for a definite term. The value of the gift is calculated as the value of the property, less the retained interest. However, if the grantor does not outlive the retained term, the property will be included in the grantor's estate.
- A limited liability company (LLC) has the benefit of protecting assets generally. If someone is injured on the property, the owner's liability would be confined to the ownership interest in the property.
- A partnership has the advantage of a formal structure, but each partner would have to contribute.
The issues that arise most often for second and subsequent generations concern how to allocate both the benefits and the burdens of the vacation home, that is, the use of the home and the expenses of the home, including maintenance, insurance, and taxes.
The benefits and burdens can be spelled out in writing in as much detail as is desired, but it is not advisable to leave these matters to chance. There is the potential for discord and bruised feelings in even the most congenial families if, for example, one sibling is left out of the prime vacation times while shouldering more than his or her share of costs for maintenance and repair. Parents might head off at least some of these issues by setting up an endowment to cover ongoing expenses for the home.
Take A Look Towards The Future When Planning
Looking a bit farther down the road, whatever legal forms are used should provide a means by which one or more of the family members can sell his or her interest in the home to the remaining family members. Considering that there may be honest disagreement as to the property's value, it makes sense to look for consensus by using two separate appraisals, one arranged for by the selling family member and one by the remaining owner or owners.
The contents of this article are for information only and is not to be interpreted as legal advice. For personal legal advice you should consult with an attorney who is experienced in probate law or estate planning.