Transferring your legacy
Your Vacation Home Needs an Estate Plan
Do you have a treasured second home, summer property or another vacation residence that your family enjoys? Have you thought about what happens to this beloved property when you die? If you do not plan appropriately and thoughtfully, problems may arise with respect to this property and your family when you are gone.
Problems are almost unavoidable when emotional attachment mixes with family relationships. Planning can help avoid expensive and stressful issues.
Talking to your spouse and children is a good initial step to help determine interest in retaining the property for the next generation and financial ability to maintain it. Here are three ways you can plan for your vacation home.
An outright transfer of the home via a deed to children is the simplest structure for giving away a vacation home. However, if your children all own the property equally, they all have equal say regarding the use and management of the property. All decisions require unanimous agreement, which can prove challenging and be ripe for disagreement.
The children could choose to create a Use and Maintenance Agreement, for instance, to determine the terms and rules for the property usage. Again, this contract would require all children to agree.
In addition, when each child has their own individual interest in the property, each child can leave it however they choose at death (or even give it away during life), which can further divide property interests and quickly become messy. An unhappy child could force a sale of the entire property by seeking to partition the property in court, resulting in expensive and divisive litigation.
An LLC is a tool often used by families where each family member has a certain amount of membership interests in a home or to give away a home in a controlled manner. The LLC operating agreement lays out rules for governing the use and management of the property. In addition, the LLC can be modified over time, should circumstances change.
The initial owner of the property can put the home in the LLC. Then the owner can give away interests in the LLC all at once or over a period of years (using the annual exclusion amount, currently $16,000 per recipient). The LLC operating agreement can also outline restrictions on transferability, to make sure unapproved persons do not end up as owners.
Finally, the LLC is a great option for a rental property. A properly used LLC can help limit liability. Profits could offset expenses and could be used to help maintain the property in the long term.
Trusts are another vehicle to help with the ownership and transfer of vacation homes. Different trust structures exist for this purpose, including:
Planning for your family’s vacation property is important to help avoid litigation and maintain family harmony. Addressing how the property will be paid for, and setting aside money for it, as well as selecting the right structure for your family to use and enjoy the property will no doubt help avoid problems down the road.
This article was written by Emily Parker Beekman, Tracy Craig, Actec, Aep® and Fellow from Kiplinger and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to email@example.com.
The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views or opinions of Union Bank, its subsidiaries or affiliates.